Lebanon premier warns of economic collapse amid political crisis

Government may be unable to pay wages next month, while the country's credit rating could also be affected.

Lebanese prime minister Tammam Salam said the government may be unable to pay wages next month amid a political crisis that has left the country without a president or a functioning parliament.

The impasse may also prevent the government from selling bonds, affecting the country’s credit rating, Mr Salam told a news conference in Beirut on Sunday, a day after dozens were wounded when a protest against growing piles of garbage turned violent.

“The garbage crisis is what broke the camel’s back, but the story is much bigger than this,” Mr Salam said. “Did you know that because of the failure to take decisions, we may not be able to pay the salaries of a large number of public sector employees?”

The inability to service the public debt through bond sales could push Lebanon’s rating down to the ranks of the “failed states,” Mr Salam said. Lebanon is rated B- at Standard & Poor’s, six levels below investment grade.

Beset by domestic sectarian crises and regional proxy conflicts, Lebanon has been without a head of state since president Michel Suleiman’s term expired in May 2014, because lawmakers can’t agree on a successor. Parliament hasn’t convened in months and squabbles between supporters of regional Sunni and Shiite powers Saudi Arabia and Iran have impeded the cabinet’s decision-making.

A Lebanese official, speaking on condition of anonymity, told Bloomberg last week that the country plans to tap international debt markets to raise $1.3 billion this year. Authorities will approach banks over the issuance next month, the official said.

Mr Salam spoke after at least 75 protesters were wounded in Saturday's clashes with security forces in central Beirut, according to the Daily Star newspaper. The interior ministry said more than 30 policemen were hurt.

Garbage has been piling up in Beirut since July 17, when the main landfill for Lebanon’s capital was closed before officials had agreed on an alternative site. The garbage was removed from Beirut two weeks later but kept increasing in other areas of Lebanon as the cabinet deadlocked over the issue.

Mohamed Abu Basha, an economist at Cairo-based investment bank EFG-Hermes, said politicians might reach a compromise to resolve the country’s immediate economic crisis, “which has been the equation governing the country for a few years now”.

“But a long-term resolution seems unlikely before the more important conflict is resolved one way or another, namely Syria,” he said by email.

Hundreds of thousands of Syrian refugees have flooded Lebanon since the conflict broke out in 2011.

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