Bright side to Lebanon budget impasse - Abigail Fielding-Smith - The Financial Times

For all the sophistication of its banks, boutiques and bars, Lebanon has not managed to pass a budget since the assassination of Rafiq al-Hariri, the former prime minister, in 2005.
Following Mr Hariri’s death, the government became paralysed until Qatar brokered an accord in 2008. The following year’s general election and pain­staking formation of a government also necessarily delayed budget discussions.

In June, when the Council of Ministers formed a new national unity government and finally approved a draft 2010 budget, there were hopes that Lebanon might achieve what for most economies would be a minimum requirement for economic stability.
Not so. A widening gap between the two main political blocs has meant that parliamentary ratification of the budget has run into the sand.
“There is an overriding cost that comes from the failure of the system to perform basic tasks of government, including passing budgets,” says Mohamad Chatah, a former finance minister and now adviser to Saad al-Hariri, the prime minister and son of Rafiq.
“It is making Lebanon a not very attractive place to be as a business or as an individual. You have many businesses that should locate here that are not. You have investments from abroad, Arab and non-Arab, that are not choosing Lebanon as a destination because of these things.”
The delays are having tangible effects. The draft budget commits to much-needed investment in telecommunications and energy but this is now on hold.
As politicians debate the country’s spending needs, experts are consulting constitutional law to try to find a way through this predicament. One obstacle is how to close the books on the past four years’ worth of spending.
Finding a legally acceptable way to close the previous years’ accounts is an essential precursor to passing a budget and has itself become a source of dispute.
There are, however, loopholes. The law allows the government to continue spending if a budget has not been passed, so long as it does not exceed a 12th of the previous legal budget in any given month.
It is also possible for additional spending to be authorised by the Council of Ministers if a department has unusual needs; last year, for example, the interior ministry was granted extra money to supervise a general election. Mr Chatah says about $7bn of funds have been disbursed in this way since 2005.
Nor are the results of the fiscal dilatoriness as bleak as may be expected.
“We cannot take it as completely negative that a budget hasn’t been passed,” says Mounir Rached, a former International Monetary Fund consultant and now vice-president of the Lebanese Economics Association. “I don’t think anything would be different had a budget been approved.”
Some analysts believe that removing public spending from political debate may actually have benefited the economy.
Kamal Hamdan, an independent consultant, says: “We have registered the highest growth rate in the last three or four decades during the last three years, when the government has been almost non-existent.” An IMF report this month estimated Lebanon’s growth rate this year at 8 per cent.
For Marwan Barakat, head of research at Bank Audi, the controls that the political impasse has imposed on public spending have had a positive effect in reducing the country’s debt to gross domestic product ratio, one of the highest in the world.
“To be frank, the fact that [the budget] has been delayed has led to good fiscal figures,” he says. “This is good for investment at large. We cannot do expansionary fiscal policy in Lebanon.”