Lebanese MPs (finally) meet to study the 2022 budget

I-What is the purpose of the session?

Lebanese MPs are meeting on Thursday for the first day of a plenary session that will last until Friday evening, in order to adopt the annual state budget for 2022. The meeting was supposed to start on Wednesday but was postponed. During this meeting, members must debate and then vote, normally article by article, on a text that was approved by the government of Najib Mikati in Feb. 2022 before being revised by the parliamentary Finance and Budget Committee.

If the text is adopted at the end of the plenary session, it will be more than seven months behind the deadlines set out in the constitution. The budget should normally have been passed by Parliament by the end of January 2022.

Lebanon's adoption of an annual budget is one of the reforms expected by the International Monetary Fund to release a multi-billion-dollar financial assistance to a country in full economic collapse since 2019. 

II-What is happening inside and around the Parliament

- Dozens of protesters gathered around 10 a.m. close to the Parliament, expressing their opposition to the draft budget that will be discussed by the MPs.

- MP Ibrahim Kanaan (FPM/Metn), head of the Finance and Budget Committee, said that "the economic and social vision is absent from the budget, which came outside the constitutional deadline in light of the high unemployment rate, low growth rate, and low percentage of bank credits allocated to investment expenditures."

Despite the committee not having fully decided on all points — "in terms of expenditures, revenues and some articles of the draft law" — the 2022 budget was passed and submitted to the General Assembly on Aug. 25. to avoid a worst-case scenario, according to Kanaan, as otherwise the government would have had "to continue spending on the basis of the provisional twelfth rule."

The provisional twelfth rule, dictated by Article 86 of the Constitution, allows the state to continue operating in the absence of a budget law, based on spending the equivalent of one-twelfth of the budget provided for in the previous year’s finance law. 

However, this option can only be activated during the month of January of the year in which the budget under discussion in Parliament is to be implemented, and only in the event that Parliament fails to approve the draft budget in time. In practice, this rule was abused to allow the state to operate without a budget from 2005 to 2017, and then from 2021 to today.

- After Kanaan's statement, MPs from different groups took the floor to give their opinion on the proposed budget.

- MP Mohammad Raad, leader of Hezbollah's Loyalty to the Resistance parliamentary group, spoke against the budget saying that "neither the government, nor its president, nor its finance minister, should brag about the completion of this draft budget," adding that "at the same time, we cannot hold them exclusively responsible for the deterioration that was caused by previous governments." Raad also said that his parliamentary bloc will decide whether to vote for or against the budget depending on some of the answers around the budget during Parliament's meeting.

- During the session, a short argument broke out between MP Paula Yacoubian (Forces of Change/Beirut I), who was giving a speech, and another MP, Charbel Maroun (FPM/Beqaa II), when she asked the following question addressing Parliament Speaker Nabih Berri: "What are you waiting for to call for a session to elect a president of the republic?"

The situation was brought back to control after Berri intervened asking the MP to only talk when it is his turn.

Yacoubian ruled that "the draft budget, with its contents, is a failed one, and the numbers are not based on a clear strategic plan which will lead to further [economic] downturn and confidence will remain lost."

- MP Georges Adwan (Lebanese Forces/Chouf) said that his parliamentary bloc, the Strong Republic, "will not vote for such budgets nor for such mechanisms of action."

- Deputy Parliament Speaker Elias Bou Saab said that "the stalling that is taking place in Lebanon when it comes to addressing the crisis is unprecedented, and no country can emerge from its crisis with our current and ongoing pattern." Bou Saab added that boycotting parliamentary sessions is "not acceptable."

- Right after the second half of the session started at 5 p.m., electricity cut briefly while MP Neemat Frem (Independent/Kesrouan) was speaking. Frem continued his speech by raising his voice until electricity came back.

- Kataeb Party head Sami Gemayel said during the session that he "will not discuss the budget because this is not a budget."

"What are we telling people in this budget? That the Finance [Ministry] wants to take their money for a state that is nonexistent," he said.

Gemayel also asked Berri to schedule a Parliament session Friday for the election of a new President, so that a new government would be formed in order to come up with a "rescue plan, instead of discussing the budget." President Aoun's term ends on Oct. 31, while the constitutional period to elect his successor started on Aug. 31. 

- Bilal Abdallah, a Progressive Socialist Party MP and member of the Finance and Budget committee, said during Thursday's session that the budget includes "a handful of constitutional, financial and technical issues which I won't talk about." However, "amid the current atmosphere and as none of you knows where we are going, I think the worst budget is better than no budget at all because in 2023 I am not sure we will have a government or a budget."

- Shortly before 9 p.m., Nabih Berri adjourned the session. Parliament is set to reconvene on Friday 2:30pm. 

III-Key issues in the 2022 draft budget 

While several exchange rates are currently in force in Lebanon, what rate will be adopted to credibly calculate the state's annual revenues? The document that MPs are considering contains three scenarios, depending on the exchange rate adopted: LL12,000, LL14,000 or LL20,000 to the dollar.

It is not yet clear at this stage if and how the rate that will be chosen will be applied in the context of state spending, including the salaries of civil servants, who have been demanding salary increases for months.

Tax lawyer Karim Daher noted to L'Orient-Le Jour the lack of “fairness” on the tax front, as the new taxes within the 2022 draft budget, if implemented, would be applied uniformly to taxpayers of all socioeconomic levels regardless of their respective incomes. Nearly 80 percent of the population in Lebanon lives in poverty, according to the UN.

IV - What is the context of this session?

Parliament did not pass a budget for the fiscal year 2021, and the delay in passing the 2022 budget does not bode well for a potential 2023 budget, which is approaching its constitutional deadline of at most the end of January 2023.

The adoption of credible, balanced budgets is among the reforms needed to convince the IMF board to lend funds to the country as part of a multi-year recovery process, which other international donors are expected to join in later. A preliminary agreement had been signed on April 7, in which the IMF said it was ready to release $3 billion over four years to help Lebanon.

In addition to the budgets, in order to benefit from financial assistance, Beirut should reform its civil service, resolve the issue of losses accumulated by its financial system and fight more effectively against corruption. A law on banking secrecy is also part of the package deal. It was approved by the legislature at the end of July, but its content did not convince the IMF. The law has since been sent back to Parliament by President Michel Aoun for a second reading.

The budget voting session is taking place as the election period for a new president began on Aug. 31, 2022. Current President Michel Aoun's mandate expires on Oct. 31, 2022.