Wednesday, September 8, 2010

When government by auto-pilot is better than active government

Finance Minister Rayya al-Hassan submitted the 2011 budget law proposal to the cabinet yesterday.

This would be good news, in normal circumstances...after all 2011 is 3 months away. But this is Lebanon, which is rarely normal, and the event did raise some justified skepticism. After months of bickering, the  2010 budget proposal was referred to Parliament by the President last month!

Lebanon was very lucky to have spent most of this year on auto-pilot based on last year's budget.  To understand why, you need to look no further than the Ministry of Finance's website:

In a year when economic growth has been strong, increasing tax revenue, Lebanon agreed on a budget that would increase spending even faster.  While sitting on top of one of the highest debt to GDP ratios in the world, the budget proposes a Primary Deficit, which will imply a further increase in the debt burden.

The environment of low interest rates and rapid growth enjoyed by Lebanon this year, is only partly due to skill in economic management. The truth is that Lebanon was more lucky than good: lower global interest rates and a primary surplus allowed this happen.  If the budget had been approved early in the year, Lebanon could only have enjoyed its current level of economic growth if it had been more lucky than bad.

I do not pin the blame on the Ministry of Finance. The Cabinet has shown itself throughly incapable of agreeing on anything other than the lowest common denominator. In economic terms, this invariably means increasing spending for this Ministry or that, but few meaningful restraints anywhere.  To be sure, the country needs to increase spending in some areas, but it can't afford to do so without some serious cuts elsewhere.  Most of us can think of entire government departments that can (and should be) shut down without any loss of service or convenience to anyone.

This is an instance where no agreement by the Cabinet would have been far better than agreement.

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