BEIRUT: A recently approved wage increase will cost the Lebanese government some LL1.4 trillion ($800 million), Finance Minister Mohammad Safadi confirmed Tuesday, adding however that the 2012 deficit would not exceed LL5.25 trillion despite an ambitious plan to boost investments in infrastructure.

“The 2012 budget will have two objectives. The first is to increase investment spending in electricity, water, natural gas and roads – given the increasingly urgent economic need for these projects. The second objective is to avoid any increase in the deficit beyond LL5.25 trillion,” Safadi said.

Safadi revealed that his ministry is currently in the process of modifying the 2012 budget proposal in line with significant increases expected in public sector wages.

To help keep the deficit at bay, Safadi said, the government was considering a 1-percent hike on the value added tax, instead of a 2-percent hike suggested in the budget draft submitted earlier to the Cabinet.

Safadi’s 2012 budget draft has come under sharp criticism for suggesting the increase on the largely unpopular tax.

Safadi stressed that public investments in natural gas are key in cutting back on Electricite du Liban’s huge losses, which alone put a nearly $2 billion burden on the public budget.

“The electricity deficit will not decrease unless we change the raw materials used to produce electricity. Investments in natural gas have become a necessity and we should cooperate with the private sector on realizing this,” he said, revealing the government is considering investments in gas pipes.

Safadi’s comments came in a seminar held Tuesday at the Beirut Chamber of Commerce, where participants discussed the development of various partnerships between the private and public sectors.

“We will boost investments but we look forward to a law that will allow for a partnership between the government and the private sector,” Safadi said, calling for various legal reforms that would allow the private sector to become more engaged in infrastructure projects.

In a discussion with businessmen following his lecture, Safadi said the government would not cancel VAT refunds. He said the refunds had been delayed after an investigation into discrepancies opened last year.

Safadi renewed the government’s commitment to keep export subsidies for both the industrial and agricultural sectors. However, he said the government should lower interest subsidies on facilitated loans from 7 percent to 4.5 percent.

“The cost of these subsidies is currently around $150 million, but lowering it aims at expanding the subsidy to more economic sectors, and not to cut back the expense,” he said.

When asked about Lebanon’s intention to join the World Trade Organization, Safadi said the membership application had been delayed because of failure to enact legal reforms required by the organization. He urged the government to work more on realizing the membership.

Lebanon has been trying in vain to join the WTO, but the organization and some Western nations are pressing the government to crack down on rampant copyrights violations.

Head of the Chamber of Commerce Mohammad Choukair urged the government to preserve the good economic conditions that had sustained high growth levels in 2009 and 2010 despite the global financial crisis.

He reiterated that the private sector had passed through very difficult economic conditions in 2011, calling on the government to take the necessary measures to boost productive sectors.

Separately, local media reports said Safadi had not included in his 2012 budget proposal the funds needed for leasing out electricity-generating ships.

“These have not been included in the budget because the tenders have not been awarded to a specific company yet,” Safadi said, adding that the ships provide a relatively cheaper and more efficient alternative to producing electricity domestically.

“The ships will also allow for maintenance works due on various electricity plants,” the National News Agency quoted Safadi as saying.

There are increasing concerns about the alarming level the public deficit has reached, prompting leading bankers to say their banks are not willing to increase subscriptions in government-issued Treasury bonds unless the Cabinet takes crucial steps to cut out squandering across some of its most-budgeted ministries.