Recently a paper rumoured to be the government’s economic reform plan was leaked, and apparently it intends to present this plan to all parties involved in the crisis. The parties in the crisis include the Lebanese people, banks, international creditors that hold treasury bonds and finally the institutions and countries that seek to assist Lebanon in the form of loans, which would only be given on the condition of reducing the public budget deficit by reforming the electricity sector and imposing additional taxes on Lebanese citizens. It should be noted that this leaked paper lacked any serious reforms that would adjust the structure of the Lebanese economy and halt its downward spiral. Why is that?
Simply put, any structural economic reforms will come at odds with the current political structure in Lebanon. The first entity that would be hurt by any reforms in the country’s political and economic apparatuses is Hezbollah. This is because the group is the biggest government entity that exploits state corruption and it also the largest captor of state funds. Moreover, other political entities in the country, such as Gebran Bassil, get a piece of the pie by promising complete obedience to the group.
So what reforms should the government seek to take in order to ensure economic recovery?
First, there is the problem of surplus employment in the public sector. A third of the state budget goes to cover public sector pensions. Part of this money is paid to thousands of imaginary employees who do not show up to work. This has been a problem that has been informally discussed among many political blocs, but it has not been officially addressed.
A report by Ibrahim Kanaan, a member of President Aoun’s bloc, indicated that therr is about 40,000 imaginary jobs in the public sector. These jobs are divided among the leaders of Lebanon’s religious sects. The reason why thousands of people are getting paid (with state funds) for doing nothing is because leaders distribute these jobs among their sects, and clans to ensure their loyalty. Addressing this issue would require leaders from sects to forgo their ability of keeping their clans and electorate happy and satisfied.
Second, there is the problem of customs evasion, which is something that Hezbollah is directly involved in. Most businesspeople and merchants with close ties to Hezbollah have American sanctions placed on them. To help these businesses, Hezbollah ensures that goods going to their loyalist merchants pass through airports and harbours without any customs fees. As a result, these merchants can flood markets with goods at low prices that other businesses can’t compete with. Ghazi Al-Aridi, the former Minister of Public Works and Transportation, spoke about this issue stating that such actions have deprived the state from billions of dollars in revenue. Moreover, merchant tax evasion has hurt the economy, what is worse is the fact that most businesspeople seek tax evasion, especially those who are loyal to Hezbollah.
Then there’s the issue of the electrical energy crisis, which is a huge rabbit hole in of itself since this issue has exhausted public funds and has cost the state tens of billions of dollars over the last three decades. Up until this moment, Lebanon has not found a sustainable solution to this electricity crisis and yet the Lebanese population still annually pays two billion dollars for such a poor service. Gebran Bassil and his Free Patriotic Movement have been in charge of this portfolio for the past decade and he has thus far failed to address the issue.
Any economic policy that addresses the issues above would hurt Hezbollah and its allies since it would deprive them from their sources of income. Any resolution of these problems would also hurt the group’s illicit activities in Latin america and its efforts to circumvent the Trump administration’s policies towards Iran.
As such, Hezbollah cannot and will not enforce any policies that will improve the Lebanese economy because it benefits from the curruption that is rampant within the state. So the real question is the following: if the Diab government ignores all these issues and forces the people to bear the burden of economic reform by making them to pay higher taxes, would they accept that?