BEIRUT: The Lebanese government is no longer capable of borrowing in foreign currency but will be able to meet its short-term debt obligations, the Finance Minister said Monday.
Ali Hasan Khalil said Parliament needs to pass a law authorizing the Cabinet to issue foreign-currency denominated debt and approve extra-budgetary spending to pay the salaries of civil servants over the coming months.
Khalil added that he would not approve credit facilities beyond the allocated budget for every ministry, which could leave some ministries short of funds to pay their employees in the coming few months unless Parliament ratifies the 2014 draft budget or authorizes extra-budgetary spending.
“First of all, let’s be very clear: ... the treasury is in good shape, we don’t have a liquidity crisis and therefore we can pay salaries and dues. ... However, we must legalize state spending so that we are not held accountable on a personal or a political level,” Kahlil told a news conference in Beirut.
According to the law, the Cabinet is bound by the financial ceiling of the last budget, which was ratified by Parliament in 2005. The failure to ratify a budget since then led to extra-budgetary spending of $22 billion by the end of 2011.
Nearly $6 billion was spent in 2011 by the government of former Prime Minister Najib Mikati, $5 billion in 2010 by the Cabinet led by former Prime Minister Saad Hariri and $11 billion by the two Cabinets led by former Prime Minister Fouad Siniora between 2006 and 2009.
Khalil, the top personal aide of Speaker Nabih Berri, urged lawmakers from all parliamentary blocs to participate in Parliament sessions to approve extra-budgetary spending.
A number of lawmakers who have refused any legislation amid the presidential vacuum have accused Khalil of blocking credit facilities to ministries to pile pressure on them to participate in Parliament sessions. Khalil denied the allegations, saying his decision was not politically motivated.
The finance minister also warned that “at some point in the future” Lebanon might face difficulties in repaying buyers of Lebanese Eurobonds if Parliament fails to convene to authorize the issuance of foreign currency-denominated debt.
However, economists downplayed concerns over Lebanon’s ability to settle outstanding payments in 2014 with less than $500 million in dues after the government swapped in April and May of this year $677 million and $881.6 million in maturing Eurobonds, respectively.
One economist, speaking on condition of anonymity, told The Daily Star that the Central Bank can circumvent the government’s inability to issue Eurobonds by issuing certificates of deposit in foreign currency. As of the end of April, the Central Bank portfolio of CDs in foreign currency stood at $7.3 billion.
The inability to borrow in foreign currency should also represent a motive for the government to rein in the mounting deficit-to-GDP ratio, according to Nassib Ghobril, head of economic research at Byblos Bank.
“Hopefully, the inability to borrow in foreign currency should provide an incentive for the government to cut expenditures, fight tax evasion and increase revenue collection,” Ghobril said.
A large chunk of the government expenditures goes to Electricite du Liban, which posted a deficit of $2.2 billion that the Treasury financed in 2013 to ensure the state-run company could buy the necessary fuel oil, according to Khalil, who said it would do the same in 2014 to prevent any increase in power rationing.
Khalil slammed EDL for blaming his ministry for a forecast increase in power rationing outside the capital and urged Parliament to hold a session to grill EDL on an array of “problematic” issues.
“Those accusations are unfounded and inaccurate,” he said.
EDL claims to have a letter from the Cabinet instructing it to stick to a $1.8 billion deficit ceiling rather than $2.2 billion.