BEIRUT: A leading Lebanese banker fears a Greek economic scenario in Lebanon this year if the government fails to take immediate action to reduce the budget deficit, cut waste and implement broad reforms.

“If the debt continues to rise in the same high tempo then I won’t be surprised if Lebanon experiences the same scenario in Greece, whose economy is in total shambles,” Francois Bassil, Chairman of Byblos Bank, one the three largest banks in the country, told The Daily Star in an exclusive interview Thursday.

Bassil reiterated that Lebanese banks are not willing to lend the government more money if Prime Minister Najib Mikati and his ministers fail to adopt crucial measures to cut the size of the public debt, which has reached alarming levels.

Lebanese banks have been financing most of the public debt since late former Prime Minister Rafik Hariri embarked on a bold drive to rebuild the country.

The Central Bank of Lebanon and local banks hold most of the debt, which is expected to reach $60 billion at the end of 2012 through subscriptions to treasury bills and sovereign eurobonds.

Bassil made it clear that Lebanese banks will roll over the outstanding debts each year, but have no intention or desire to increase their exposure to this debt.

Mikati has so far been unable to implement a number of the reforms that he promised because of sharp political divisions between ministers.

Finance Minister Mohammad Safadi presented the 2012 draft budget to the Cabinet for approval last month, but several ministers, mainly from the Change and Reform bloc, knocked the bill down the moment it became public.

Safadi had proposed raising the Value Added Tax to 12 percent from 10 percent, and raising the tax on interest rates on customer deposits to 7 percent from the current 5 percent.

The finance minister insists that a hike in taxes is unavoidable if the government wants to allocate greater funds for electricity, water and infrastructure projects.

According to data from the Finance Ministry, the value of Lebanon’s public debt rose to about LL80.496 trillion ($53.7 billion) by the end of August, an increase of LL1.198 trillion from what it was during the same period last year.

Meanwhile, as domestic debt has declined in the portfolio of commercial banks, the Central Bank has simultaneously assumed a greater share of sovereign bonds.

The Finance Ministry issued $1.2 billion in eurobonds on Aug. 2, 2011, to be released in two stages: the first $500 million in November 2016, at an interest rate of 4.75 percent, the lowest interest rate achieved by Lebanon on the issuance of foreign currency since 1994; and the second, $700 million in October 2022, at an interest rate of 6.2 percent.

“We will swap the outstanding bonds with other bonds at the current market rates. Interest rates are relatively low now, but they may rise again if no solution for the public debt is found,” Bassil said.

He emphasized that banks are ready to help the government if the latter showed willingness to reduce the size of the public debt, cut waste in all government departments and allow the private sector to take part in essential projects in the future.

“We had the Paris I, II and III donor conferences over the past years, but we have not seen any reform being implemented” the banker said.

Bassil questioned why the government does not seek the help of banks and the private sector to find a solution to the chronic electricity crisis.

“I don’t believe we will have proper electricity round the clock if the concerned ministers reject the assistance of the private sector,” he said.

Energy and Water Minister Gibran Bassil wants the government to secure $1.2 billion in loans to boost electricity supply by 700 megawatts.

But Mikati and Safadi seemed reluctant to proceed with Bassil’s plan because it entails borrowing more money from the market, a step that is certain to raise the budget deficit.

The energy minister rejected the recommendation of some ministers to seek loans from Arab funding bodies at very low interest rates with long maturity.

The Byblos chairman warned that Lebanon can’t afford to sleep on the electricity crisis for a long time as this would make conditions even worse.

He also stated that he strongly favors a partnership between the private sector and the government.

“The energy minister’s plan is perfect, but its execution is very dangerous because the government has to borrow more money and count more on service providers,” the banker explained.

He believes that the best choice for the government in respect to energy is to seek one of three options: private and public partnership, Build Operate and Transfer schemes, and concessions.

“The government must first complete all the administrative appointments and create an energy regulatory authority to ensure that all the projects implemented are done in a transparent manner,” the banker said.

He also expressed fear that tenders will be awarded to companies that are close to political parties in the country.

He said Safadi’s budget is close to LL21 trillion, meaning that the public debt will rise considerably.

Bassil also rejected raising taxes at this critical moment. “Taxes will scare away investors. The government should improve collection of taxes instead of contemplating higher ones,” he said.

Asked about the projected profits of Lebanese banks in 2012, the chairman said he expects net income this year to fall slightly compared to 2011 if the situation remains unchanged.