Lebanon's PM vows strict austerity reforms to avoid crash

Prime minister says Lebanon has no choice but to take strict austerity measures to avoid economic 'catastrophe'

BEIRUT -- Prime Minister Saad Hariri warned Wednesday that Lebanon is heading toward an economic "catastrophe" unless the government implements strict austerity measures to reduce a ballooning budget deficit and massive national debt.

The stark warning came shortly after parliament passed amendments necessary to implement an ambitious plan to restructure the country's crumbling electricity sector. Restructuring the power sector, dysfunctional since Lebanon's 1975-90 civil war, has been among key demands for reforms by the World Bank and international donors.

Outside parliament, hundreds of civil servants protested, fearing the austerity measures to be adopted in the new budget would lead to wage cuts for state employees amid the economic crisis. The budget is still in the works and is expected to be sent to parliament for approval in the coming weeks.

The electricity plan was approved by a large majority in parliament Wednesday, days after it was agreed on by the government. It aims to eventually bring electricity to the Lebanese 24 hours a day, securing an additional 1,450 megawatts of temporary power by next year so that total output will reach 3,500 megawatts — enough to provide power around the clock.

In the longer term, the plan calls for power production to be increased by more than 3,000 megawatts over the next six years by building new plants and relying more on renewable energy.

Lebanese officials hope that plans to fix the electricity sector that has cost state coffers about $2 billion annually would lead to the release of $11 billion in loans and grants made by international donors at the CEDRE conference in Paris last year.

The protest by more than 2,000 state employees in downtown Beirut comes amid discussions by the government of what it called "painful" and "unpopular" measures to be taken to try to cut the budget deficit and slow the growth of the national debt, which stands at more than $85 billion, or more than 150% of the gross domestic product, making it among the highest in the world.

"We have approved the electricity plan and we are working on the budget, which will include a wide austerity package," Hariri told journalists in a tense back and forth after Wednesday's parliament session. Without going into details, Hariri hinted that some civil servants and members of the military may have to make "sacrifices," insisting that such steps will not affect the poor.

"I am not saying that Lebanon is about to collapse but if we don't take major steps, we will reach a place where no one wants to be," Hariri said. Speaking about overspending, Hariri added: "If we continue this way, we will reach a catastrophe."

He later posted on Twitter that his two-month old government "is obliged to put forth an austerity budget unprecedented in the history of Lebanon."

No agreement yet has been reached but leaks about possible wage cuts have led to random protests and street closures by members of a worried public. Foreign Minister Gebran Bassil tweeted over the weekend that if wages are not reduced, "there will be no salaries for anyone" in the future.

"The draft budget does not include so-called wage cuts," Finance Minister Ali Hassan Khalil told reporters after Wednesday's parliament session, seeking to calm nerves.

Some economists say the crisis has begun already and is getting worse every week with new waves of layoffs, rising debt and slow growth.

Chawki Saliba, a chemistry professor at the Lebanese University, was in the protest area Wednesday and expressed worries that his wage could be cut.

"There are major concerns, especially that living conditions are becoming very expensive and difficult. Civil servants cannot tolerate" having their wages cut, he said.

"Those who led us to this point should take the responsibility. Why did we reach this level? Because they have been stealing for 20 years," Saliba said about Lebanese politicians.