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French Version

Banque Audi issues gloomy economic forecast - Growth likely to decline in 2004 (Daily Star)

Failure to move forward with economic reforms in 2004 does not pose an immediate threat to the country, but politicians need to take responsibility and put aside their differences to save the country the high cost of maintaining financial stability, a leading bank said in its third-quarter economic review. “Caught in the debilitating power struggle among top politicians, economic policy-making has continued to lose momentum over recent months,” said the report, issued by Banque Audi.

The bank said political bickering is increasing the cost of implementing reforms, such as privatization and securitization, which are expected not to take place next year due to preoccupation with the presidential and municipal elections.

Lebanon achieved 2 percent growth in the first three quarters of this year, but is unlikely to achieve high growth in 2004, according to the report. It went on to suggest that 2004 is probably going to be “another missed year on the road toward fiscal adjustment.”

The government has already forecast the fiscal deficit in the 2004 budget to fall at 32.5 percent of spending, higher than initial forecasts. The finance minister drafted a “realistic” fiscal budget that did not include receipts from privatization and securitization. “Given the currently reinforced market resilience and the significant gains that resulted from Paris II, failure to move forward with adjustment measures would not pose an immediate threat to economic and financial stability,” the report said.

“However, if the state proves unable to introduce structural adjustment measures at this stage, Lebanon will have little prospect of reducing the deficit in the fiscal account in the medium term. This in turn would drive up future borrowing requirements, leaving Lebanon locked in the unsustainable debt spiral that has dominated economic policy over the last decade.”

The report said the government should stop “political spending” which is driving up the fiscal deficit and forcing the government to renege on the reform promises it made at the Paris II donor meeting in return for $4.4 billion in soft loans to cut the public debt. “The rationalization of the public spending, despite its limited maneuverability with more than 80 percent of public finance spending being accounted for by interest and salaries, remains a must,” said the report. “This requires a firm political will shared by all politicians, and involving the tough decision of ceasing political spending.”

The bank said Lebanon’s public debt, which has exceeded $30 billion so far this year, will reach a new record high of 186 percent of the gross domestic product by the end of 2004.

The bank said the government has to adopt a stricter debt management policy to control the public debt. The report recognized the commitment to fiscal adjustment, but asserted that this amounted to little without a clear consensus on policy proposals, especially in relation to expenditures and tax reforms. “The realized debt restructuring measures are essential for the fiscal adjustment process; they are however considered insufficient to instigate a solid and sustainable soft-landing of public finance conditions, unless more radical measures of debt management … are enacted.”

Beirut 01-12-2003
Dania Saadi
The Daily Star

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