Lebanon must fight corruption to restore investor, public confidence: IMF

Lebanon needs economic reforms that can fight corruption and restore confidence in its beleaguered economy, the director of the International Monetary Fund (IMF) in Middle East and Central Asia Jihad Azour told Al Arabiya in an exclusive interview.

Azour said that the country needs to review the performance of public institutions, such as the electricity sector, that have contributed to its bulging debt.

On Monday, Lebanon entered its fifth day of protests. Thousands of demonstrators in the capital city of Beirut and across the country are calling for the immediate resignation of Prime Minister Saad Hariri and his government, as well as an end to corruption.

Before the protests escalated to calls for a regime change, the government was considering raising value-added tax (VAT) as part of its 2020 austerity budget, in an attempt to bring Lebanon’s budget deficit to 7 percent of gross domestic product (GDP) in 2020. The budget deficit had reached 11 percent of GDP in 2018, up from 8.6 percent in 2017.

Lebanon has long suffered from large fiscal deficits that have pushed its public debt to one of the highest in the world at over 150 percent of GDP. The current account deficit is over 25 percent of GDP, according to the IMF.

Azour pointed to the electricity sector as one example where reform is needed to reduce expenditures, adding that electricity costs have become a “tough burden” on the country.

“Solving the electricity problem in Lebanon would not only help the state budget, but also the economy, and the citizen who is paying multiple electricity bills,” he said.

The 12-month inflation rate in Lebanon averaged 3 percent in the first six months of 2019, compared to 6.2 percent over the first 6 months in 2018, according to research by Lebanon-based Bank Audi.

Lebanon’s economic growth slowed to about 0.3 percent in 2018 on the back of low confidence, high uncertainty, and a significant contraction in the real estate sector, according to the IMF, which expects Lebanon to see a continuation of weak growth in 2019.

“Securing sources from the state budget for social development programs [is necessary], particularly since the poverty level is rising and the deteriorating economy is becoming a burden on citizens that are most vulnerable,” said Azour.

Escalating anger

The Lebanese government on Monday agreed reforms that include speeding up licensing for power plants, as well as cutting salaries by 50 percent for all ministers, Hariri said in a press conference. But, protesters have rejected his reforms, calling them “unrealistic”, according to a statement seen by Al Arabiya.

What began as public discontent over a flagging economy has quickly escalated into a political deadlock as a nationwide general strike crippled businesses across the country.

Banks said on Monday they would remain closed and the main labor union also announced a general strike, threatening further paralysis. Schools and universities will also shut down.

The Lebanese cabinet headed by President Michel Aoun met on Monday at the Baabda palace to discuss the crisis, which is considered the biggest show of dissent against the ruling elite in decades.

“What is happening in the street reflects the pain of the people, but accusing everyone of corruption is very unfair,” the official Twitter account of the Lebanese Presidency shared on Monday, citing Aoun.

“We must begin by lifting banking secrecy from current and future ministers,” Aoun added in the Twitter post.

Lebanon’s banking sector is still governed by a 1956 law that functions under a high level of confidentiality and has come under criticism for enabling money-laundering, illicit financing, and tax evasion.

Hariri, who is leading a coalition government mired by sectarian divide and political rivalries, gave his government a 72-hour deadline on Friday to agree on reforms in an effort to ease the crisis. However, his appeasement and proposed reforms have fallen on deaf ears, as thousands of protesters continue to take to the streets across the country.

Hariri had also accused his rivals of obstructing his reform measures, which aim to unlock $11 billion in Western donor pledges and help avert economic collapse.

The protests first broke out across the country on October 7 in objection to the announcement of new fees for WhatsApp and other messaging apps. The WhatsApp fee, which would have increased monthly bills by up to $6, was quickly reversed as protests spread across the country.

-Lara Habib, Al Arabiya, contributed to this article.