Economic crisis deepens in Lebanon

Rita Boulos Chahwan in Beirut , Tuesday 7 Dec 2021

As the Lebanese economy plummets, government plans to increase social assistance for poorer families are at best a stop-gap solution, writes Rita Boulos Chahwan

Economic crisis deepens in Lebanon

Approximately 1.7 million people are now estimated as falling under the poverty line in Lebanon, of whom 841,000 are under the food poverty line, in what is being seen as a result of the four consecutive crises the country has been facing – economic, the Covid-19 pandemic, the Beirut blasts in August 2020 and now Saudi Arabia suspending imports from Lebanon.

“The consequences of these shocks on the economic well-being of households in Lebanon is far-reaching and potentially disastrous,” said Saroj Kumar Jha, Mashreq regional director for the World Bank. The Lebanese pound has lost more than 90 per cent of its value, with no change being observed in minimum wages.

Between October 2019 and October 2020, a team from the World Bank interviewed business owners and the managers of 379 firms in Lebanon, asking questions about sales, production, business closures and future prospects.

As of November 2020, almost one out of five firms surveyed was confirmed or assumed to be permanently closed. This situation has since got worse, and Lebanese Labour Minister Mustafa Bayram recently announced that the government was imposing a “daily transportation allowance in the private sector of 65,000 Lebanese pounds per day,” with public sector employees receiving an additional 50 per cent over their regular salaries until Christmas.

Lebanon’s last minimum wage increase was in 2008 when it was raised by 67 per cent, the first hike since 1996.

Adnan Rammal, a member of Lebanon’s Economic and Social Council (ESC) which is taking part in discussions with Bayram regarding raises to the minimum wage, told Al-Ahram Weekly that the focus now was on social assistance that would raise minimum salaries from 650,000 to two million Lebanese pounds in both the private and public sectors. This would be in the form of social assistance, rather than direct wage increases, he said, in order to avoid additional tax burdens.

There will be a rise in the end-of-service indemnity paid to employees that will be an additional burden on business owners. The duration of the social assistance will depend on the success of the recovery plan for the economy.

Rammal criticised the steps, saying that they were unlikely to be effective. There should be a focus on increasing purchasing power, he said, as increased social assistance would not have this effect but would have repercussions on inflation and on financial balances and the black market value of the dollar.

These were difficult times for both employers and employees in Lebanon, he said, with the former often lacking fuel along with raw materials and looking for continuity of production despite current losses.

Lebanon has also announced a long awaited cash card programme that will provide a desperately needed financial lifeline to half a million vulnerable families. The programme, financed by the World Bank, will be active for one year and provide $25 a month for each individual in a household to a maximum of $126 per family. Citizens over 64 will receive an additional $15.

However, according to Rammal the roll-out of the card has been delayed, even though its intention is to provide help for families by paying them in dollars and to protect vulnerable families from poverty.

The ESC has advised the government to design policies to help the country achieve higher economic growth, but Rammal said it had not been listened to.

Policy and research specialist Mohamed Chamsedine, a member of the index committee advising the government, said that by law the committee is supposed to set the minimum wage in Lebanon and that this should be 250 per cent of the current lowest salaries.

Social security payments are another issue for businesses in Lebanon, as many do not declare the real salaries of their employees on which contributions are levied. According to Chamsedine 16 per cent of employees are registered on salaries of 650,000 Lebanese pounds, too low to be susceptible to tax and other contributions and unlikely to be a genuine figure.

Social assistance instead of raising salaries was a solution favouring the business classes, he said.

The immediate impact will be a rise in inflation, according to economist Walid Chaar, who described the assistance as a partial solution and one not linked to the economic cycle. The Lebanese pound will continue to fall on the international exchanges, and dollars will increasingly only be available on the black market and will only be spent on consumption, making it more and more difficult to find the dollars required to pay for Lebanon’s imports, he said.

Sources in Lebanon told the Weekly that because of the crisis with the Gulf Cooperation Council (GCC) countries, Lebanese businesses are planning to move to Oman, Jordan, Turkey and Egypt where conditions are easier in terms of taxes and the minimum wage. A few are thinking of taking Lebanese employees with them to manage their companies to the same standards as in Lebanon.

Should there be an exodus of business from the country, there are important questions regarding the government’s future options. It has no real plans to develop the agricultural, educational or hospitality sectors, and even tourists are now in short supply in Lebanon owing to present conditions.

*A version of this article appears in print in the 9 December, 2021 edition of Al-Ahram Weekly.

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