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Spending hike, revenue drop overturn surplus

  • The Finance Ministry building is seen in Beirut. (The Daily Star/Mahmoud Kheir)

BEIRUT: Increasing spending and falling revenues continued to take a toll on Lebanon’s state finances, registering a primary deficit of $550 million in the first nine months of this year, the Finance Ministry said Friday.

According to the statement, the primary surplus saw a decline of LL1.802 trillion ($1.2 billion) compared to the same period of last year.

In 2012, Lebanon recorded a primary surplus of LL979 billion in the period up to September, a sign that the state of public finance was far better than this year.

State employees’ wage hikes coupled with rising government spending in 2013 were among the main reasons for the deficit.

Traditionally, past finance ministers have taken pride in a primary surplus that occurred despite a burdensome debt servicing and high allocations to salaries of public staff that practically consumed more than 90 percent of the total budget.

The Finance Ministry also said the budget deficit in the first nine months of 2013 rose to 31.89 percent (or LL4.95 trillion) of spending compared to 22.7 percent in the same period of 2012.

Total state revenues up to September fell by 2.24 percent to LL10.834 trillion while total spending, including treasury operations, increased by 11.57 percent to LL15.551 trillion.

Nearly all direct and indirect taxes, including the allocations from the Telecoms Ministry, fell this year.

The gross public debt also jumped by 8.2 percent to $62.4 billion up to September of this year.

Domestic debt was higher by 8.1 percent from end-2012 to reach a total of $36 billion at end-September 2013. Lebanon’s external debt saw an increase of 8.3 percent between end-2012 and end-September 2013 to reach $26.4 billion.

The Association of Banks in Lebanon said the increase in gross public debt during the first nine months of 2013 was accompanied by an increase in public sector deposits at the Central Bank that edged up by 24.9 percent from end-2012 and stood at $7.4 billion at end-September 2013.

Meanwhile, public sector deposits at commercial banks went up by 7.6 percent from end-2012 to reach $2.9 billion at end-September 2013.

But some economists were more concerned about the slow economic growth than the rising public debt.

“It is wrong to assume that the public debt can be lowered with the available means. It is better to focus on achieving a high GDP growth to make this debt more manageable,” Markam Sader, ABL’s secretary-general, told The Daily Star.

He expected debt to barely rise by $1 billion at the end of 2013, translating to a debt-to-GDP ratio of 140 percent.

In his view, there was no real solution to the public debt even among the most developed countries.

“We should focus our attention on achievinghigher GDP growth instead of lowering the debt. When we have good growth then debt will not be the main concern,” Sader argued.

He also did not see a real chance to implement real fiscal reforms under these circumstances. “The new government, if it is formed, will probably not implement reforms but rather try to alleviate the consequences of the crisis around Lebanon,” he said.

Economist Ghazi Wazni shared those views. “Japan’s public debt is nearly 200 percent of its GDP and yet the country is a prosperous state. Very few countries around the world have surpluses in their budget. The only measure for a healthy economy is to have high GDP growth,” he added.

Wazni stressed that Lebanon could still easily finance the public debt thanks to the excessive cash in Lebanese banks.

He noted that nearly 84 percent of the local and foreign bonds are held by the Central Bank and the Lebanese commercial lenders.

 
A version of this article appeared in the print edition of The Daily Star on November 30, 2013, on page 4.
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