President Michel Aoun warned Lebanese on Thursday of the risk of harsh financial measures from international institutions unless sacrifices are made to save the country from economic crisis.
Aoun’s comments in a speech marking army day appeared to raise the possibility of Lebanon having to go to the International Monetary Fund (IMF) for help if government reform efforts fail to bring enough improvement to state finances.
Lebanon is grappling with one of the world’s heaviest public debt burdens and years of low economic growth.
The impetus to enact long-delayed reforms has grown with the slowdown of deposits into its banking sector, a critical source of finance for the state.
Deposits shrunk slightly in the first five months of the year. Foreign reserves, while still large relative to the size of the economy, have been falling.
Aoun said Lebanon was going through a hard economic, financial and social crisis that it could overcome “if we are determined to do so”.
“Interim sacrifice is needed on part of all the Lebanese with no exception in order for the rescue process to succeed,” he said.
“If we do not all make a sacrifice today and accept to waive some of our benefits, we are running the risk of losing them all, when our country comes to the table of international lending institutions, with all the tough economic and financial schemes that they may impose on us,” he said.
The Lebanese government has passed a state budget for 2019 that aims to slash the deficit as a percentage of national output. The IMF said last month the deficit would likely be well above the government’s target of 7.6 per cent from over 11 per cent in 2018.
The budget included some politically tricky measures, such as a three-year freeze on state hiring. More difficult ideas were torpedoed, such as a public sector pay cut, and critics say the government also avoided the main problem: corruption.
The major deficit reduction measures include hiking tax on the interest paid on bank deposits and government bonds, a new import duty, and a plan to cut debt servicing, though it is not yet clear how that will be achieved.
The IMF, in the concluding statement of an Article IV mission, said Lebanon should adopt revenue measures that include raising value-added tax (VAT) and increasing fuel excises as well as efforts to increase tax compliance.