Lebanon without a government feels remarkably similar to Lebanon with a government. The political establishment in this country is so fickle and dysfunctional that the cogs and levers that actually drive this fragile nation grind along regardless of the ineptitude and cynical shenanigans of those voted into office. This begs the question, how much will the resignation of Prime Minister Najib Mikati affect the wider economy?
The country’s financial health had been declining for some time prior to Mikati coming to office in June 2011, and was in a worse position as he made his dash for the exit last Friday. The economy grew a paltry 0.8 percent in 2012, down from 1.8 percent in 2011; Despite sluggish activity, inflation belligerently persists at around 10 percent; foreign direct investment dropped more than two thirds in 2012, and a recent study by the American University of Beirut and Byblos Bank found consumer confidence at its lowest since their first poll in 2007. The nation’s prospects were further sullied by the fiscal deficit ballooning 67 percent in 2012, with a corresponding upswing in the debt-to-gross domestic product (GDP) ratio to some 140 percent.
Mikati’s government undoubtedly had their work cut out for them. The crisis in Syria has led to acute regional tensions that have affected Lebanon, with the knock-on effects severely damaging tourism and security, as well as inflaming sectarianism. Furthermore, high energy prices have put the squeeze on Lebanon’s treasury, as the country is completely dependent on oil and gas imports to produce electricity.
But while in office the government also failed to realize any meaningful reform in public administration, which is critically needed. Furthermore, the politicians sat on a number of laws that could have breathed new life into Lebanon’s battered private sector, including a public-private partnership law, an updated intellectual property rights law, an international trade and licensing law, and a competition law that would have challenged the stifling predominance of well-protected oligarchies.
Perhaps the most glaring shortfall was the failure, once again, of the government to agree on a budget for 2013. It is nothing short of astounding that Lebanon has been without an official budget since 2006. For eight years the country has bungled along with a system that lacks any semblance of accountability or forward planning, whereby spending beyond the 2005 budget is covered by “treasury advances”. What kind of economic stewardship can be expected from a government that cannot even agree on its own spending?
It would be unfair to focus purely on the shortcomings without acknowledging where progress was made. Decrepit and decaying infrastructure is one of greatest shackles to Lebanon’s development and the likes of the pugnacious Minister of Energy and Water Gebran Bassil and his political bedfellow, the Minister of Telecommunications Nicolas Sehnaoui, have achieved some strides forward in their sectors.
These could be short-lived gains though. The seemingly ineluctable predisposition of ministers to view their sectors as personal fiefdoms undermines any kind of policy continuity between administrations. Efforts to develop independent and technocratic management of the sectors with informed and empowered regulatory bodies is consistently blocked. If the ministerial deck is shuffled in the weeks and months to come we can expect fresh teams of advisors sporting new plans for their sectors.
One major economic policy of Mikati’s government was the public sector pay increase. The debate surrounding how to fund the wage hike presented the government with a chance to embark on administrative reform, tackle corruption and waste, and rebalance the economy away from its disproportionately high dependence on the real estate and banking sectors towards the productive sectors. Such moves would have provided greater popular legitimacy to the policy and potentially a more equitable and sustainable society.
Instead the government rushed through half cooked plans at the 11th hour and in doing so they missed a trick. Just before resigning Mikati sent the draft bill to parliament for debate, where many will wonder whether they’ve just been handed a fiscal time bomb.
Will the economy collapse now Mikati’s government has gone? The simple answer is no. Lebanon has endured a lack of coherent leadership before and the economy can weather a brief period of political reordering.
But another protracted political vacuum would impact Lebanon’s already fragile security. With the country’s sectarian divisions brimming, a lack of political leadership — no matter how flawed that government may be — could leave the door open for hostilities to run wild. This is surely the greatest threat to the economy, and all attempts must be made to shield the country from the noxious winds blowing in from the war next door.
Zak Brophy is a freelance business journalist based in Beirut