Closing the gap

During the recent launch of the World Bank report on Lebanon’s economic performance, some participants argued that the proposed salary adjustment, if implemented, would have dire consequences for the Lebanese economy. They went on to state that salary changes would increase inflation due to higher taxes, raise the cost of finance to the private sector through higher interest rates, and entrench inefficiency in the public sector because of the non-meritocratic nature of the adjustment. These allegations are at best misleading. For one, an increase in taxes will not raise the cost of living if the right tax is imposed; the interest rates on private sector loans will not necessarily increase since interest rate determination in Lebanon is not subjected to market dynamics as often claimed; and linking wage increase to public sector reform, although highly desired, will not happen because of the sectarian nature of the state. Before tackling each