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French Version

Lebanese deficit spending reduced in 2004 (Daily Star)

Results do not include outstanding dues
State's debt servicing falls but public debt rises to an alarming $35 billion

Lebanon's budget deficit spending at the end of 2004 fell by 8.47 percent to 28.71 percent (or a little less than $2 billion) from 37.18 percent in 2003, according to a Finance Ministry statement issued Thursday.

But these results do not reflect the outstanding dues on the government to both public and private sectors, such as the National Social Security Fund (NSSF), municipalities, hospital owners and contractors.

Finance Minister Elias Saba said last week previous governments had failed to pay the outstanding dues to both the private and public sector, promising to disclose all details soon.

He added that the deficit figures published in past years represent total revenues and spending of the government plus debt servicing.

"But if we include the outstanding dues for the private and public sector in 2004 the deficit will reach 34 percent," Saba said.

The ministry reported a low budget deficit in 2003 and 2004 following the success of the "Paris II" conference which injected $2.5 billion in soft loans to help reduce debt servicing. Debt servicing fell considerably over the past two years thanks to the soft loans from donor states as well as deposits of $3.6 billion from commercial banks at zero percent yields for three years.

The ministry said the primary surplus, excluding the cost of debt servicing, reached LL500 billion at the end of 2005.

It added that debt servicing in 2004 fell by LL853 billion to LL4.021 trillion.

Debt servicing represents the bulk of government spending.

Last year, the government successfully tapped the international market with $1.35 billion worth of eurobonds at an average interest rate of almost 7.5 percent.

The government has been issuing eurobonds in large quantities to finance the public debt, which has reached $35 billion.

But if the outstanding dues to the public and private sectors were included that public debt may reach $40 billion.

Revenues from the value-added tax (VAT) in 2004 rose by 29.55 percent to LL1.763 trillion. VAT is now the main source of income for the government, followed by customs duties and telecoms.

Total government revenues in 2004 rose by 12.92 percent to LL7.514 trillion while spending fell by 0.49 percent to LL10.540 trillion.

Saba said earlier he would pay nearly LL220 billion to the NSSF to cover part of the money owed by the government, estimated at LL1.2 trillion.

The minister is expected to present the 2005 draft budget to the Cabinet once the election law is approved by Parliament.

However, Saba suggested there may be no time to discuss the draft budget as the elections are expected to take place in May of this year.

The World Bank warned the government that the pubic debt has reached alarming levels, urging the authorities to speed up reforms.

Saba promised to adopt new measures to stimulate the economy and reduce the size of the deficit.

But the minister declined to make any direct comment on Paris II commitments, adding that privatization and securitization need further studies.

The previous government failed to privatize any of the state owned entities in 2003 due to sharp differences between former Prime Minister Rafik Hariri and President Emile Lahoud.

The respected Economist Intelligence Unit said economic reforms will remain on hold until the outcome of the elections is clear.

Beirut 31-01-2005
Osama Habib
The Daily Star

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