Experts’ take on Lebanese economic problems

adminJanuary 9, 2019NewsComments are off for this post

By Tina Abou Rizk (Jounieh) bytheeast.com — — In order to deal with its economic problems, Lebanon needs to first address corruption and the lack of transparency, think the leading economists following a “damning report” of McKinsey. The said report, released by the “Ministry of Economy”, fills “1,200” pages warning the government of a “crippling political stalemate” grip, whereby claiming an economic collapse in the country. Amid the economic problems in Lebanon, one particular figure causes disturbance, whereby revealing that the Lebanese spend an extra 50% time than what’s “needed on congested roads”, while only fifteen percent of the roads are “in good condition”. Furthermore, the report also mentions that the Lebanese infrastructure is ranked “113th out of 137 countries”. The Head of External Relations at the “Dubai International Financial Center” as well as the ex-chief economist, Dr. Nasser Saidi stated: “These numbers come from a variety of sources like the World Bank and others, so these have been assessed by various international parties”. “What’s more important is the cost of this in terms of productivity and income, because when you spend time on the road you aren’t producing anything, so congestion costs are very large in terms of both loss of business opportunities, lost income and lost productivity.”

However, economic problems are also linked with the country’s electricity quality, for Lebanon stands as the “world’s fourth-worst quality of electricity”, as a fellow associate from the “Chatham House”, Nadim Shehadi, said: “Electricity in Lebanon is just more expensive, but everyone has 24-hour electricity if they can afford it”. “If you measure electricity supply by state provision then it’s the worst in the world, but if you measure it by what’s available to people, it’s not so bad. There are sometimes indicators that have to take into account the fact that Lebanon is a mixture of private sector, illegal activity and government sector, and sometimes illegal activity compensates for the government sector.”

Another woe to the economic problems in Lebanon is that, even though, the government fails to meet the electricity supply demand it will not “change the law”, therefore in Shehadi’s words: “So the only alternative is illegality, which supplements the government. Illegality is not necessarily totally negative (in this case).” Furthermore, Saidi added: “In terms of governance, it has been deteriorating over the past five to six years on a continuous basis. It’s corruption, bribery and nepotism. In all reports on transparency and corruption, Lebanon is unfortunately one of the most corrupt (places) in the world, and the importance of it is not only that we want to be able to fight corruption, but that it has become a cancer and it is so pervasive.” Emphasising on the matter of economic problems, as it majorly adds up to the “budget deficit” besides contributing to public finance, he stated: “Corruption is directly related to government procurement and government contracts as well as government revenue. So there is widespread tax evasion, and corruption is at the core of Lebanon’s large budget deficit, which was close to 11 percent in 2018 and likely to be the same or higher in 2019… The economic and fiscal impacts are extremely important.”

Ever since the year of 1980, there has been only 30% of increment in the present GDP figures, noted the report. In Shehadi’s words: “If you want to measure the real damage that the civil war and the occupation have done to the country, it’s where Lebanon stands vis-a-vis countries that were equivalent to it before the war. So it has regressed a lot by that measure”. According to Saidi, the country needs to improve the resources available at the “central statistic office” to uplift the poor statistic quality in Lebanon. Given the “lack of field productivity growth and investment”, the GDP has struggled to grow. The report of McKinsey, however, underscored the education system of Lebanon as being low in “quality and in decline”. While, Saidi added: “The picture is diverse and there’s a big gap between public and private education. The major private sector universities are St. Joseph, the AUB and the LAU, which are able to deliver competitive quality education. The evidence for that is that our graduates are able to go to top-notch universities internationally”. However, the problem is that the elites alone can “afford high-quality education”, which excludes the majority of the population. But Saidi points out: “You need to think of two things: Education for employment, which should give you skills to be able to get jobs, and digital education for digital employment, because economies on a global basis and in the Arab world are increasingly going to have to move to become digital.”

The Lebanese youth lack the education needed to “participate in the modern economy” due to the low “productivity growth” coupled with high rates of poverty in the country. And Shehadi informed that the public schools found it difficult to change the official curriculum, given the fact that it is the usual case with “anything to do with the government”. In Shehadi’s words: “It’s very slow, inefficient and doesn’t work. That’s why 70 percent of education in Lebanon is private or non-governmental.” Moreover, Saidi observed: “There’s very little public investment, and all remittances and the capital coming in from the diaspora go into bank deposits, treasury bills and to finance the budget deficit. We have one of the highest levels of debt to GDP in the world, in excess of over 158 percent, which makes it the third most indebted country in the world after Japan and Greece.” According to him, the little amount of public investment lies at the root of the very problem, as he said: “It’s all going to finance wages, pensions and interests on public debt. They’re happy to pay high rates just to attract them. Had we not had them, they would’ve had to adjust on their own and had fiscal reform.” Saidi believes the main causes behind the economic problems are “fiscal reform and corruption, cutting down the budget deficit and the level of public debt”. He said: “The government of Lebanon is paralyzed for political reasons, and there are very good political reasons for its paralysis. It’s dysfunctional, and the main blockage is political.”