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Lebanon’s debt to swell by $4 billion in 2014

Caretaker Minister Safadi meets with a delegation from the Iraqi Finance Ministry. (The Daily Star/Dalati Nohra)

BEIRUT: Lebanon’s public debt is projected to swell to $65 billion in 2014 even with the introduction of new taxes, the caretaker Finance Minister has revealed.

“We estimate that the public debt will reach $61 billion in the end of 2013 and $65 billion in 2014,” Mohammad Safadi told The Daily Star in an exclusive interview.

“The $4 billion increase in the debt is due to projected growing spending. The introduction of salary scale is one of the reasons for the surge in the debt. Even if we applied new taxes next year, the debt will still end with $65 billion in 2014.”

Lebanon’s public debt now stands at $59 billion, or 135 percent of the country’s gross domestic product, one of the highest debt-to-GDP ratios in the world.

Safadi explained that the 2014 draft budget projects a deficit of at least $5 million, or 38 percent of spending, which includes the salary increase for public sector employees passed by the Parliament’s Budget and Finance Committee early this year.

“If we wanted to boost revenues for the Treasury then we must have at least 8 percent GDP growth, and this figure will not be attained if the political and security situation remains unchanged,” the minister said.

Parliament has yet to meet to approve the salary scale package, and most observers rule out any imminent decision due to deep political differences between the March 8 and March 14 coalitions over several issues.

The Finance Ministry is still spending money based on the 2005 budget ceiling that was approved by the Cabinet and Parliament at that time.

All governments since 2005 have failed to pass draft budgets as a result of the tense political and security conditions that have gripped the country.

“We have prepared the 2014 draft budget, which needed the approval of the Cabinet, but since none of the bills have passed, we are obliged to stick to the 2005 budget,” the minister said

“The ministers approved a series of taxes to boost revenues but refused to raise the value added tax from 10 percent to 12 percent on the ground that this tax would raise inflation by 2 percent,” Safadi added.

The caretaker Cabinet is not authorized to approve the 2014 draft budget.

Prime Minister-designate Tamam Salam is still holding talks to form a Cabinet, but a government is not expected to materialize soon in view the of demands and counterdemands of rival political parties.

Safadi said the political and security situation in the country had not had a significant impact on the revenues of the state.

“Revenues have dropped by 4 percent and this is quite acceptable under these delicate circumstances. The deficit at the end of this year will reach $3.5 billion or 27 percent of spending,” the minister said.

Lebanon’s budget deficit has jumped by more than 38 percent, or $433 million, in the first four months of the year to reach $1.516 billion, the Finance Ministry said Friday.

The Treasury registered a $270 million primary deficit in the first four months of the year compared to a $192 million surplus during the same period last year.

The primary balance is a vital indicator calculated by deducting the interest payments component from the total deficit of any budget.

The primary deficit means that even if Lebanon had no interest payments it would not be able to pay for expenditures without borrowing.

Total revenues declined 0.76 percent to $3.151 billion. Tax revenues shed 1.3 percent and nontax revenues declined 6.6 percent.

Safadi stressed that his ministry had tried to cut unnecessary spending to keep the budget deficit under control.

“We succeeded to some extent in lowering expenditures and without touching the basic spending such as salaries of public employees or allocations to infrastructure projects that were previously approved by the Cabinet,” he added.

He said the deficit target was still set at $3.5 billion at the end of this year and could go little bit more but wouldn’t be too alarming.

“The budget deficit up till now has not exceeded $2.1 billion and total spending at the end of this year is projected to be $13 billion.”

Safadi said the Finance Ministry would not issue new eurobonds this year but that it may issue $1 billion in Treasury bills, an amount which would not have a major effect on the public debt.

“The Central Bank and the Lebanese commercial banks are fully cooperating with the Finance Ministry and have met all our needs. We have no intention to tap the markets for more eurobonds this year,” the minister said.

He believes that Lebanon’s GDP growth in 2013 will range between 1 and 2 percent.

“This growth is acceptable by European standards, but according to our standards this growth is far from our ambition. We must have a growth of 8 percent if we wanted to stimulate the economy and boost government revenues,” Safadi said.

The minister insists that the Finance Ministry did a good job despite the numerous challenges it has faced since the Cabinet was formed.

“We have accomplished a lot under the circumstances. We are planning to launch the e-payment [system] next week and this is a major step for Lebanon,” he said. “E-payment will facilitate the lives of the Lebanese tax payers and cut red tape.

Safadi repeated that he had no desire to run for the parliamentary elections in the future or take up a ministerial post.

“But I won’t quit political life and will continue to perform my duty toward my country,” he said.

Asked about the composition of the new Cabinet, Safadi advised Salam to form a national unity government that does not exclude any party.

“We must have a Cabinet that includes all major parties in Lebanon. You can’t run a country in the absence of the main political groups and especially under these delicate conditions,” the minister argued.

 
A version of this article appeared in the print edition of The Daily Star on August 24, 2013, on page 4.

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