Safadi denies sounding alarm bells over lack of liquidity

File - The Finance Ministry building is seen in Beirut, Lebanon, Monday, Jan. 16, 2012. (The Daily Star/Mahmoud Kheir)

BEIRUT: Caretaker Finance Minister Mohammad Safadi denied Wednesday reports that he had sounded the alarm over a lack of liquidity at the Treasury. “A newspaper quoted Safadi in its headline as saying ‘state finances are at risk.’ This is completely false and [Safadi] has never made such a statement,” Safadi’s office said in a statement. “The Treasury is in a sound situation.”

Local newspaper Al-Jumhouria quoted Economy Minister Nicolas Nahas as saying Safadi had warned the Higher Defense Council Monday that $500 million was urgently needed for the state to proceed with vital expenditures, including public sector salaries for July and August.

On Tuesday, caretaker Prime Minister Najib Mikati discussed with the head of the Council for Development and Reconstruction, Nabil Jesr, the lack of funds to launch developmental projects that had already been approved by the government.

Safadi was unavailable for comment as he is currently abroad, but a source at the Finance Ministry ruled out rumors of a liquidity crisis, adding that salaries would be paid on time.

The source, however, said the Cabinet needed to authorize additional spending before the ministry could fund new projects. The source added that the Finance Ministry had made a request in that regard to Mikati.

Lebanon’s Parliament has not passed a budget since 2005, and the law stipulates that the Finance Ministry cannot surpass spending beyond the ceiling that was authorized in the last budget approved by the legislature.

Former Finance Minister Jihad Azour said a caretaker Finance Ministry could raise money by issuing Treasury bills but that it could not exceed the 2005 level of spending without authorization from the government.

“The law is very specific on the need to roll over debt, but to finance additional spending, this is something different,” he said. “At least an authorization by the government is needed.”

While the government continues to borrow to meet its increasing expenditures, Lebanese banks have lost their appetite for T-bills and the Central Bank has had to step in to fill the void.

“This not the first time that we are going through this situation, which is a reflection of the political crisis and deadlock that we are in,” Azour said.

But Azour added that urgent action was required to cut the soaring deficit.

“State expenditures are going up and revenues are stagnating because of the economic situation ... which means we are incurring an additional budget deficit,” he said. The widening deficit was the main problem of 2012, Azour said, and little was done by the government to address the issue.

“In 2012 the increase in spending was one of the highest in years, and we did not see action by the government or the Finance Ministry to stabilize and to improve the fiscal situation,” he said. “There is resiliency and immunity in the Lebanese economy, but we are exposing it at a difficult time, when the regional and local outlooks are negative. It is not very healthy to keep going in this direction.”

A version of this article appeared in the print edition of The Daily Star on August 01, 2013, on page 5.




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