Lebanese cabinet meets after hiatus, amid friction over budget

Hezbollah has expressed opposition to the current draft for the budget.

Leading businessman Najib Mikati gestures at the presidential palace in Baabda, Lebanon July 26, 2021. (photo credit: MOHAMED AZAKIR/REUTERS)
Leading businessman Najib Mikati gestures at the presidential palace in Baabda, Lebanon July 26, 2021.
(photo credit: MOHAMED AZAKIR/REUTERS)

The Lebanese cabinet met on Monday for the first time since October, convening after Iranian-backed Hezbollah ended a boycott but with the powerful group and others objecting to a draft budget that was the main agenda item.

With Lebanon mired in one of the world's sharpest financial crises, Prime Minister Najib Mikati hopes passing a budget will help talks with the International Monetary Fund (IMF), which Lebanese officials say will begin on Monday.

Lebanon has failed since 2020 to make progress towards securing an IMF bailout, with no sign of long-delayed reforms sought by donors.

Mikati said he hoped the cabinet would "cooperate in a spirit of responsibility, far from any disputes". A row over the probe into the 2020 Beirut port explosion had led Hezbollah and its closest allies to boycott the cabinet.

But criticism of the budget suggests difficulties ahead.

 A Lebanese flag flutters near unlit residential buildings during a partial blackout in Beirut, Lebanon August 11, 2021 (credit: REUTERS/ISSAM ABDALLAH) A Lebanese flag flutters near unlit residential buildings during a partial blackout in Beirut, Lebanon August 11, 2021 (credit: REUTERS/ISSAM ABDALLAH)

Heavily-armed Hezbollah said on Sunday the draft did not "bode well", criticising proposed tax increases and saying it could not support it.

The Free Patriotic Movement, the Christian party founded by President Michel Aoun, has objected to an article that gives the finance minister authorisation to set the exchange rate.

The Lebanese pound has lost more than 90% of its value since the crisis erupted in 2019, plunging most Lebanese into poverty.

CURRENCY COMPLICATIONS

Finance Minister Youssef Khalil said that there was no agreement yet on an exchange rate for the budget, "but numbers might not be far from" rates ranging between 15,000 and 20,000 pounds per dollar, broadcaster Al Jadeed reported.

He was referring to rates reported by Reuters on Friday, when an official source said this range would be applied for operating expenses.

He said that the rate determined by a central bank platform would be applied to customs transactions. That rate was an average 22,700 pounds per dollar on Friday, slightly below Monday's parallel market rate of 23,300.

Unifying Lebanon's multiple exchange rates is an IMF policy recommendation.

A previous attempt to negotiate with the IMF failed in 2020 amid disagreement between the government, commercial banks, and central bank about the size of losses in the financial system and how they should be distributed.

Beirut said in December it had agreed on a figure of $69 billion for the losses, which the IMF has said it is assessing.

The government has yet to release new proposals about how the losses could be distributed.

An IMF spokesperson said on Friday the Fund intended "to remain closely engaged in the coming weeks to help the authorities formulate a comprehensive reform strategy".