Workers say they have suspended the industrial action for three days and will meet on Friday to decide the next step.

Lebanon’s Central Bank employees have suspended a strike that had threatened to further undermine confidence in the country’s fragile economy.

Staff voted to suspend the strike, which started on Friday over fears employees’ salaries would be cut under government austerity measures, until Thursday. They said they would decide whether to resume the industrial action on Friday.

Abbas Awada, the chief of the bank’s syndicate, told local media that if the budget articles pertaining to reduced benefits for bank employees was not changed, they would resume the strike.

The striking workers had also expressed concern about the bank’s independence amid reports that its legal status would be changed.

Naseeb Ghobril, head of the economic research and analysis department at Byblos Bank, told Al Jazeera that the decision was taken after assurances from the highest level in the government.

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“Normal operations have resumed because the concerns of the employees have been heard,” he said. “The government has assured the bank that it is independent and that their salaries would not be cut as a part of austerity measures under discussion.”

The State Minister for Presidential Affairs, Selim Jreisati, had tweeted support for the bank on Sunday. “It is not the government’s intention whatsoever to encroach on the independence of the Central Bank, which is one of the pillars of our liberal economic system,” he wrote.

Mulling austerity measures

Lebanon’s government is mulling austerity measures to balance its budget by reducing state expenditure and increasing revenues.

Gebran Bassil, foreign minister and head of Lebanon’s largest party, the Free Patriotic Movement, had reportedly backed cuts to the wages of public sector employees and an end to service indemnities. This led to protests by public sector employees, including those of the bank.

The strike by the state’s leading bank had a ripple effect causing the country’s stock exchange to suspend trading on Monday.

Reuters news agency quoted a source who said that the stock exchange would resume business as usual on Wednesday if the strike was lifted on Tuesday.

Financial experts said that the suspension of trading at the stock exchange, which is very small, would have a limited financial effect on the overall economy of the country, but it was nevertheless a sign of nervousness at the effects of the strike, which also reportedly caused cash shortages in parts of the country.

Since December, Lebanon has seen frequent protests with people demanding jobs, better healthcare, and other services. The Middle Eastern country has debts of more than 150 percent of gross domestic product (GDP), the third-highest ratio in the world, according to the IMF.

An economic collapse would be devastating for Lebanon’s fragile political system in which power is largely divided between Christians, Sunnis and Shia Muslims. Because of that sectarian divide, its stability is closely watched by countries in the region who fear a knock-on effect.

Jad Chaaban, an associate professor of economics at the American University of Beirut, said plans to deal with the debt had divided the political establishment.

One view recommends a reduction in public spending through a standard austerity programme involving cuts in public sector budgets. The other side contends that Lebanon’s distinctive, financial services-led economy requires a different approach.

It argues for a levy on the private banking sector, which has continued to record high profits despite the economic squeeze in part due to Central Bank policies to support the Lebanese pound’s pegged exchange rate with the dollar.

Chaaban would go even further, requiring the private banks to lend to the government to cover its debt repayments at low interest rates.

“Commercial banks have witnessed an average seven percent increase in their net profits every year since 2011 despite the country’s GDP stalling over the same period, and many other sectors suffering,” he said.

“It is, therefore, more than fair to request that they contribute more than others to help balance the public budget.”

Banker Ghobril advocates enforcement of existing laws.

“Revenues can increase by fighting tax evasion, improving fee collection, and containing smuggling,” he said.

“If the authorities submit a budget with these targets and implement them, they will reduce the fiscal deficit significantly, which will cause a positive shock in the market that will result in a decline in interest rates overall, including on debt servicing,” Ghobril added.

Austerity package

Prime Minister Saad Hariri wants to access the $11bn loan package pledged to Lebanon at the 2018 CEDRE development and reform conference. In order to get that money, Lebanon must satisfy economic and fiscal conditions set by international donors.

Hariri says his government is determined to “carry out the necessary reforms despite the difficulties that exist”.

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Public expenditures rose from $6.7bn in 2005 to $16.55bn in the first 11 months of 2018, according to Ghobril. He said the focus should be on cutting at least $2bn in the 2019 budget and to increase revenues by $1bn without increasing taxes or fees.

Lebanon’s cabinet has already met four times to discuss its 2019 budget.

The proposed cuts include a 50 percent reduction in the salaries and allowances of MPs, ministers and the president, a temporary suspension on hiring in the public sector, cutting down on paid leave days and a cut in the pensions of retired military personnel.

The employees of the Central Bank say that they will go back to striking if the draft budget proposes salary cuts or curtails any of their benefits.