February 25, 2020
The Government Monitor No. 12 - The Ministerial Statement Falls Short of Addressing the Financial Crisis

 
What’s the Issue at Hand?
On 11 February, 2020, the Lebanese parliament gave the newly formed cabinet a vote of confidence. Prime Minister Hassan Diab presented the government’s program in a ministerial statement comprising 127 measures that covered 18 policy areas—the bulk of which are distributed as follows: Economic growth (15%), public finance reform (11%), social safety nets (10%), energy sector (10%), judicial reforms (7%), modernizing public institutions (7%), and fighting corruption (7%).
 
While the program sets timelines for the implementation of its proposed measures—ranging between 100 days and three years—it comes short on adequately addressing the country’s unraveling financial woes.
 

 

• Only about one fourth of the total measures (34) directly address the current financial crisis.
• Of those, 18 are reform promises iterated in previous plans—notably the previous ministerial statement in February 2019 and the CEDRE reform plan in April 2018.
• This means that, of the 127 proposed measures, only 16 are newly proposed ones that directly address the financial crisis. These include:

 

1. Investigating capital flight that occurred after 17 October, 2019.
2. Drafting a bill that rewards those who help uncover illegally acquired public funds.
3. Inviting the donor community to investigate and recover stolen aid money.
4. Reforming the tax system through a unified progressive taxation on income.
5. Approving a unified tax declaration.
6. Increasing progressive taxation on high-income brackets.
7. Devising a plan to reduce debt service through an understanding between the Ministry of Finance, Banque du Liban (BdL), and commercial banks, leading to a decreased average interest rates on deposits in BdL and treasury bonds.
8. Protecting small depositors in Lebanese banks and regulating withdrawal limits, while providing transfers for patients and students abroad.
9. Strengthening the banking sector through recapitalizing banks, treating bad loans, selling its foreign investments, and restructuring the sector.
10. Reducing and limiting interests on housing loans and private sector deposits (whether denominated in dollars or Lebanese lira), in light of supporting productive sectors.
11. Seeking funds to import basic commodities.
12. Enhancing oversight on prices of goods and services.
13. Working toward loosening limits on cash withdrawals in dollars to support the import of primary goods, while also decreasing custom fees.
14. Issuing decrees to ease the restrictive measures against exports.
15. Implementing a law to cancel all taxes and fees on industrial exports.
16. Safeguarding the national currency.

 
While these 16 measures have some policy implications on the financial crisis, 11 of them are general objectives that do not refer to any concrete law or plan. In essence, they are purely deliberations over new strategies or amendments to already existing policies.
 
 
Why is this Important?
Lebanon is in turmoil as it faces deep financial challenges. With a history of ineffective monetary and fiscal policies, the country’s economic model is threatened. While Diab’s government[1] presented a program1 encompassing a range of policies to address the country’s grievances, its political will as well as its ministerial statement’s components remain to be questioned.
 
 
Background
The new government’s ministerial statement, through which the cabinet received confidence, came in response to nationwide protests that had resulted in the resignation of Hariri’s government. While the core objective of the statement was to reassure the public on managing the country’s imminent challenges, a significant number of plans were already listed in past discourses.

[1] The Government Monitor No. 11. 7 February 2020. ‘Diab’s Rescue Government?’ Lebanese Center for Policy Studies.