BEIRUT: Lebanon’s budget deficit fell by 3.68 percent to LL1.720 trillion, the Finance Ministry said Tuesday, but the figures did not include the cost of a salary increase implemented earlier this year.

This year’s deficit accounts for 21.89 percent of total spending compared to 25.47 percent last year. The ministry attributed the drop from last year’s deficit of LL1.833 trillion to a 15.08 percent rise in government revenues, mostly from the value added tax and tariffs, which could reflect a high volume of imports over the past few months. The balance of payments recorded a deficit of 22.5 percent in the first six months, which was mainly due to a sharp surge in imports.

Total tax and income revenues up to May reached LL4.48 trillion, a drop of 1.42 percent. Proceeds from VAT rose by 10.12 percent to LL1.49 trillion, while revenue from tariffs jumped by 2.44 percent to LL899.25 trillion in the same reporting period.

Total government spending up to May of this year rose by 9.68 percent to LL7.19 trillion. Excluding the cost of debt servicing, the government spent LL5.43 trillion compared to LL4.65 trillion in the same period of last year, an increase of LL78 billion.

The primary surplus, excluding the cost of debt servicing, rose by LL28 billion to LL741 billion up to May.

However, most observers believe that this year’s budget deficit figures would be bigger had the government included the additional funds allocated for the salary rise for public employees.

Safadi estimates the salary increase costs the treasury more than $1.2 billion a year. The government is expected to issue treasury bills for the new amount, and this is certain to reflect negatively on the deficit figures.

The Finance Ministry did not, however, include the gross uncollected telecoms revenues in its figures for the budget deficit this year.

The government came under criticism from economists and last year for including the uncollected revenues in its accounting last year. Opposition politicians said then that Finance Minister Mohammad Safadi should not have included the revenues, which were deposited in a Central Bank account, and not transfered to the treasury.

According to the ministry, the uncollected telecom revenues up to May stood at LL894.606 billion while the actual money collected from the sector reached LL255,388 billion compared to L299,736 billion in the same period of last year, a decrease of 14.80 percent.

Ministers have grappled over ways to increase revenues and slash spending to reign in the country’s deficit.

Prime Minister Najib Mikati seems reluctant to raise taxes substantially, as this would undoubtedly have an adverse affect on his chances to be re-elected to parliament in 2013.

But Mikati and most ministers realize that a higher deficit would prompt international rating agencies to downgrade Lebanon even further. If this happens then Lebanon’s sovereign rating will slide even further.

So far, the government has been able to issue Eurobonds with relatively low yield, but if the deficit rises sharply then the borrowing cost will soar.

Bloomberg News said earlier that Lebanese bond yields had their biggest monthly jump in more than three years in July as the revolt in neighboring Syria hit tourism, Lebanon’s largest foreign-exchange earner.