George Corm

Minister of Finance George Corm's declared objective of limiting this year's budget deficit to a maximum of 42% has already fallen by the wayside according to recent economic statistics. In fact, the deficit is higher than it was before the prominent Lebanese economist assumed control of the Finance Ministry (amid much fanfare). The deficit for the first ten months of 1999 is a whopping 44.8%--compared to 41.2% for the same period last year.¹ Only in Lebanon is such clear economic regression considered "reform."

According to a recent report by a Beirut think tank, the Lebanese economy will encounter a severe crisis unless the government significantly cuts spending and limits tax hikes in its effort to curb the public debt.

"Attempts to correct deficits by raising taxes in Lebanon will simply induce more government spending and lead to a reduction in the size of the private sector," said Ahmad Jachi, head of the Beirut consulting firm al-Buhous who recently completed a study on the Lebanese economy. "The markets will keep financing the debt until its proportion to gross domestic product reaches a level that causes panic. The crisis will hit sooner or later unless drastic action is taken."

During the tenure of former Lebanese prime minister Rafiq Hariri from 1992-1998, runaway deficit spending resulted in one of the highest levels of public debt in the world. The public debt now stands at $21.3 billion, representing over 125% of Lebanon's GDP. Under the new "reformist" administration of President Emile Lahoud and Prime Minister Selim Hoss, deficit spending has continued unabated. This year, the deficit is expected to exceed 41 percent of expenditure.

Despite the enormous amount of deficit spending, it has failed to stimulate economic growth because the proceeds are eaten away by higher interest rates, the government bureaucracy and imports. "Interest payments provide no services, employ no people, and develop no infrastructure," Jachi's study says. "Secondly, a combination of inefficient workers and corrupt politicians distorts the composition of expenditures. Thirdly, increased demand caused by fiscal expansion is directed toward imports."

The government's declared intent to reduce public debt to 98% of GDP by 2003 is almost certain to fail unless spending is cut dramatically, said Jachi. The most obvious starting point is the 50% of Lebanon's annual budget spent on salaries for government employees. Lebanon's estimated 300,000 civil servants represent nearly a quarter of all paid employees in the country. "Even less developed sub-Saharan nations approached the deficit problem by cutting spending. Belgium reduced its public workforce not by cutting salaries directly, but by cutting benefits and lowering the retirement age."

Underscoring the fact that there is no easy way out of this morass, American Ambassador to Lebanon David Satterfield told an upscale audience at the Sahel Metn Rotary Club not to count on a handout from the United States. "My experience has shown me that throwing money into projects will do little for a country if this is not matched by economic reforms," he said. "Don't expect a check from us if there is peace . . . this is not a way to help the government write off part of its public debt."

  ¹ "Corm's Numbers Set to Come up Short for '99," The Daily Star, 20 November 1999.
  ² "There Will Be No Peace Dividend from Washington, Declares Ambassador," The Daily Star, 17 November 1999.