More demonstrations in Lebanon as cabinet discusses pay cuts

Austerity measures in 2019 budget could affect public sector salaries and pensions

Lebanese former soldiers protest near the government headquarters in Beirut on May 10, 2019. Reuters

Demonstrations continued at the weekend in Lebanon as the Cabinet discussed budget cuts to avoid a looming economic crisis.

Retired military personnel burned tyres for the second time in recent weeks on Friday chanting, “Thieves. Thieves. They are all thieves" in reference to Lebanese politicians.

University professors demonstrated in a parallel protest in Beirut against possible cuts in their pensions and salaries.

After the Cabinet's ninth meeting to discuss the 2019 draft budget on Friday, information minister Jamal Jarrah announced that the military retirement age would be pushed back by five years.

No decision was taken regarding the most controversial budget proposal: slashing public sector salaries and pensions.

“The atmosphere is very favourable to a significant reduction of salaries in government agencies”, said Mr Jarrah. “We have not decided on a percentage. There was a suggestion to go with 50 per cent and suggestions for less than that. We hope that we will decide by Sunday evening or Monday lunch time."

Lebanese media have reported that salaries of MPs, the prime minister and president could also be cut by 50 per cent, but Mr Jarrah said that no decision had been taken yet.

"Everybody knows that there are MPs and ministers whose salary represents the only income, while others are more well-off," he said.

Some Lebanese politicians are among the richest in the Middle East. Prime Minister Saad Hariri's net worth is $1.5 billion, according to Forbes.

Lebanese MPs are paid 18 times the national minimum wage of $450, according to a report published in 2017 by Lebanese non-profit Legal Agenda, a ratio higher than in countries like Tunisia, Iraq, Jordan and the UK.

Mr Jarrah hinted that subsidies to public schools could also be reduced.

Facing financial disaster and hoping to tap into $11bn in international loans and grants to bolster the economy by rebuilding shattered infrastructure, the Lebanese government has drafted what officials call an “austerity budget” that still needs to be sent to parliament for approval.

Lebanon is the fourth-most indebted country in the world after Greece, Japan and Sudan, with a GDP-to-debt ratio of 140 per cent in 2018.

Demonstrations against salary and pension cuts started a few weeks ago when Foreign Minister Gebran Bassil said they would be necessary. Military veterans announced they would stage protests again on Monday.

The first ever strike by employees of the central bank last week led to commercial banks limiting daily withdrawals at ATMs and the closing of the Beirut Stock Exchange for two days.

Civil servants’ salaries, pensions and perks represent the state's biggest expense, followed by the cost of servicing debt.

But experts argue that the best way to reduce the burden of public sector salaries is by tackling fictitious names on payrolls.

In a move heavily criticised by the banking sector, the Cabinet also decided on Friday to temporarily increase a tax on interest from bank deposits, from 7 per cent to 10 per cent over three years. It had already been raised from 5 per cent to 7 per cent last year.

"Thousands of Lebanese live off interest on their savings, especially pensioners as there is no retirement scheme for private sector employees," Nassib Ghobril, chief economist at Byblos Bank, told The National. Increasing the tax "will reduce the purchasing power of the Lebanese", he said.

Additionally, 40 per cent of deposits in local banks come from the Lebanese diaspora, and Mr Ghobril feared that some expatriates would pull their savings out of their home country.

To compensate for their loss, customers could pressure banks to increase interest rates, averaging 8.75 per cent for deposits in Lebanese pounds and 5.7 per cent on dollar deposits, Mr Ghobril said. That would oblige banks to raise interest rates on loans, which would discourage clients from taking out new loans.