Lebanon to declare 'state of economic emergency' and push ahead with reforms

BEIRUT — Lebanon is set to declare a state of economic emergency, initiating plans to accelerate reforms in an effort to save the country's ailing economy.

Prime Minister Saad Hariri reiterated the importance of reducing the country's deficit to reporters Monday, following a meeting between his cabinet and political leaders.

The meeting comes amid heightened tensions on the southern border of Lebanon between Hezbollah and Israel. It was not an official gathering of ministers, but was seen as necessary to gain consensus within the government.

"Those people who had the meeting at the palace, they are not the official government which can, according to the constitution, take decisions. But they are the leaders of all the most of the religious communities in Lebanon, and sects, who are running the government and who are represented by the government," Sarkis Naoum, a political analyst and senior columnist at the An-Nahar newspaper, told CNBC's Hadley Gamble Tuesday.

"That's why their decisions are better and more influential, and maybe (more) promising than the discussions in the Council of Ministers," he added.

Lebanon is among the most indebted countries in the world, with public debt equating to about 150% of its gross domestic product (GDP), according to the International Monetary Fund. The small Mediterranean country bordering Israel to the south and Syria to the east passed a state budget in July, hoping that new austerity measures will cut the country's deficit and unlock $11 billion of foreign aid needed to keep the economy afloat.

Details of the budget have not been released to the public but there may reportedly be a freeze on state hiring, a 2% tax on imported goods and an increase in tax on interest income. But no specific agreement has been made on how to reduce the deficit, and Sarkis Naoum told CNBC that more discussions were needed.

"They convinced themselves that they have six months ... and in those six months they will try to do something," he said, adding that there were both political and economic differences to overcome.

Lebanon's Prime Minister Saad al-Hariri.

Mohamed Azakir | Reuters

One particular issue which threatens to further cripple the Lebanese economy is corruption, he added. "Shia, in general, led by Hezbollah and Speaker of the House Nabih Berri, they are against privatization. And there is a consensus in Christian communities, in the Druze communities and in the Sunni communities that we need privatization because corruption is overwhelming," said Naoum.

The small country of 6 million is home to 18 different religious communities thanks to arbitrary border-drawing by French generals, who established the state in 1926.

Lebanon won independence in 1943, maintaining a French-inspired system of pluralistic democracy. Its unique consensus government, tailored to deal with a diverse population, rests on a power-sharing structure whereby the prime minister, president and speaker of the house must come from the country's three largest religious groups: Sunni, Maronite Christian and Shia, respectively.

—Prime Minister Saad Hariri speaks to CNBC's Hadley Gamble in an exclusive interview to be aired Wednesday.

—CNBC's Natasha Turak contributed to this article.

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