BEIRUT: The suspension of Cabinet meetings has further complicated Finance Minister Mohammad Safadi’s beleaguered effort to pass his 2012 draft budget amid growing signs that Lebanon will be without any official budget for the sixth consecutive year.

Safadi, who made some amendments to his previous draft budget to win the support of most ministers, will now be forced to wait for Prime Minister Najib Mikati to call for a new Cabinet meeting.

However, even if Mikati manages to reconvene the Cabinet, it is highly unlikely that the ministers will review and approve the draft budget.

In principle, the draft budget should be approved by Cabinet and Parliament before the end of January of each year.

In his draft, Safadi projected a deficit of $3.5 billion at the end of 2012.

Among the amendments that Safadi has agreed is a reduction of his suggested VAT tax from 12 to 11 percent.

Meanwhile, rating agencies and donor states which injected massive cash into Lebanon to help successive governments finance the public debt will most likely criticize Mikati and Safadi for failing to pass a budget.

The last budget approved by both the government and the Parliament was in 2005, and since then successive Cabinets have faced an uphill battle to persuade the Parliament to approve the budgets they drafted.

According to the Lebanese Constitution and laws, the Finance Ministry is not authorized to spend beyond the ceiling set by the last approved budget.

In other word, the government cannot allocate funds for any project unless the draft budget is passed first by Cabinet and then by Parliament. But two factors will inevitably increase spending: debt servicing and the recently approved salary increases of government employees and civil servants.

In reality, none of the governments formed after the assassination of former Prime Minister Rafik Hariri have abided by the 2005 budget ceiling.

In fact, over the past six years these Cabinets have spent $11 billion more than the last approved budget.

Sources told The Daily Star that the World Bank noted serious violations committed by the Finance Ministry and even questioned the authenticity of some accounts and financial statements.

The restrained spending practiced by this government, along with increased revenues, has allowed the Finance Ministry to cut the budget deficit substantially in the first 11 months of 2011.

Lebanon’s budget deficit up to November 2011 slipped to 18.76 percent, or LL2.94 trillion (less than $2 billion), from 27.83 percent, or LL4.312 trillion, in the same period of 2010.

The deficit in the first 11 months of 2011 shrunk by LL372 billion compared to the same period of 2010.

The Finance Ministry attributed the drop in the deficit to a rise in state revenues, most notably from the telecoms sector, which generated LL1.991 trillion. It stressed that the Telecoms Ministry had transferred LL1.055 trillion to the Treasury in November.

Telecoms revenues up to November rose by 50.7 percent or LL1.66 trillion.

“These figures are quite logical because the government did not allocate additional funds for investment projects. If this had happened then the deficit would have risen by more than 18 percent for sure,” economist Ghazi Wazneh told The Daily Star.

But Wazneh noted that this government had made advance payments and issued bonds to finance transactions for some ministries in a clear violation of the law. “It is imperative to have a budget since it reflects the economic and social vision of the government each year. Budgets should stimulate the economy and not just raise taxes and cut the deficit,” the economist said.

Bankers are also expressing their frustration with the ineptitude of this government and have warned that they will no longer lend the government money, as this would increase their exposure to the public debt.

Byblos Bank chairman François Bassil told The Daily Star earlier that banks are willing to roll over the maturing bonds and Eurobonds, but they are not ready to give a penny more.

But despite the negative effects of the government’s failure to pass a budget, the finances of the Lebanese state are not at risk, at least in the medium term.

According to Bloomberg, a slide in Lebanon’s bond yields to a record low signals that investors will snap up the most indebted Arab nation’s securities when it refinances $1.29 billion in Eurobonds this year.

It added that the country, rated five levels below investment grade by Standard & Poor’s, may sell dollar notes to tap demand from overseas funds and local banks that hold 66 percent of deposits in U.S. currency.

The yield on the 6.375 percent dollar bonds due in March 2020 has fallen nine basis points so far this year to 5.51 percent, according to data compiled by Bloomberg.

Barclays Capital and Union Investment Privatfonds said demand from local banks would keep Lebanese bonds relatively immune to global financial market volatility fanned by Europe’s debt crisis. The notes have outperformed Middle East notes this year, JPMorgan Chase & Co. data show, as the Central Bank forecasts the pace of economic growth will double this year to 4 percent after slowing in 2011 amid regional political unrest.