Beirut, August 3, 2022 – Public finance in post-civil war Lebanon has been an instrument for systematic capture of the country’s resources, as it served the interests of an entrenched political economy. Excessive debt accumulation was used to give the illusion of stability and reinforce confidence in the macro-financial system for deposits to continue to flow in. Lebanon’s depression —deliberate in the making over the past 30 years— has hollowed out the state of the provision of basic services to its citizens.
The Lebanon Public Finance Report: Ponzi Finance?, released today, analyzes Lebanon’s public finances over the post-civil-war period to understand the roots of the system’s eventual -and widely expected- insolvency. It focuses particularly on three main elements: Fiscal Policy in the Second Republic; Macro-Financial Restructuring; and Public Service “Non-Delivery”. The findings identify (i) a systematic and acute departure from orderly and disciplined fiscal policy; (ii) missed opportunities to protect most depositors, in dollars; and (iii) a collapse in already weakened basic public services, putting in danger the social contract.
The report analyzes the impact of Lebanon’s erratic macro and structural policies on the “failed” provision of key basic services to the population. The current crisis aggravated long prevailing and serious gaps in the financing of those basic public services: Water, Electricity, Transport, Health, Education and Social Protection. The successive shocks that hit Lebanon since 2019 affected both the supply and demand sides in critical sectors. The crises revealed the fragility of Lebanon’s service provision model, itself a product of elite capture of State’s resources for private gains. The weakening of public service delivery was therefore a conscious effort made to benefit the very few at the expense of the Lebanese people. Citizens end-up double paying and receiving low quality product or service. The impact is also highly regressive as it affects middle- and lower-income groups much more significantly.
While addressing such fragility would be a medium- to long-term agenda, the Lebanese people need immediate assistance, and more importantly, responsible policy making by their leadership. The report proposes a series of macro and sector-specific measures and policies to address the immediate needs of the population while engaging in medium-long-term reforms to improve the performance, sustainability and resilience of public service provision. The proposed measures focus on three main objectives: 1) Ensuring sustainability and affordability of basic services; 2) Enhancing equity in public spending; and 3) Improving efficiency in government spending throughout the sectors.
Lebanon must critically adopt -now- and efficiently implement a comprehensive program of macro-economic, financial, and sector reforms that prioritize governance, accountability and inclusiveness. The earlier these reforms will be initiated, the less painful the cost of recovery will be on the Lebanese people.