After a protracted parliamentary debate, Lebanon’s MPs on 21 June ratified the 2001 state budget, which forecast revenues of LL4,900bn ($3.25bn), expenditures of LL9,900bn ($6.57bn) and a resultant deficit of LL5,000bn ($3.32bn – see Table below). The deficit is widely viewed as more realistic – at 51% of expenditures – than that forecast for 2000, which totaled 37.4% of expenditures. Debt servicing alone accounts for $2.85bn of total expenditures.

Lebanese Budget 2000-2001

(LL Bn)

$1=LL 1,507.

"Our main aim is to get out of the crisis by achieving a number of inter-related measures, which include sustained growth, combating unemployment, dealing with social issues, a gradual reduction in the budget and containing the rise in public debt," Finance Minister Fuad Siniora said in response to a critical report by the parliamentary Finance and Budget Committee. "We want to modernize the economy and maintain fiscal and monetary stability." The committee noted that the budget did not contain provision for development of the liberated areas in the south and said there was no comprehensive plan for achieving balanced growth.

The government has, however, committed to controlling public debt through cutting the public pay-roll, privatizing state assets and introducing VAT at 10% on most goods and services from 1 January, 2002 (although the draft bill for the latter has yet to be approved by parliament – MEES, 18 June). Most recently, the management of national flag-carrier Middle East Airlines (MEA) announced it was shedding 1,200 workers ahead of the airline’s privatization, in line with recommendations made by the World Bank’s International Finance Corporation. The government remains committed to a policy of replacing short-term domestic debt with longer-maturity international borrowing through the issue of eurobonds. Reflecting that policy, MPs approved a budget item that will allow the government to issue $2bn in eurobonds and issue T-bills worth the equivalent of the budget deficit in 2001 as part of the national debt restructuring plan.

However, financial markets and international ratings agencies continue to be skeptical about the government’s ability to deliver on growth and privatization. In late May, Standard & Poor’s cut its long-term local currency rating from B+ to BB-, at the same time revising the outlook on long-term ratings to negative from stable (MEES, 4 June). The Central Bank has meanwhile been forced to defend the Lebanese pound, which has been testing the top of its LL1,501-1,514=$1 intervention band for most of the year. Trading volumes on the Beirut Stock Exchange continue to fall in 2001, with activity down 3.5% in January-May year-on-year and total market capitalization down 8% for the same period to $1.423bn.

Ministry of Finance data for the fiscal year 2000 showed spending at 21.4% over budget, revenue at 15.5% under and the deficit at 56% of spending compared with the budgeted 37.4%. Ministry data for the year to the end of May indicate the deficit running at 42.6%. Lebanon’s gross public debt stood at $24.33bn at the end of April ($16.6bn domestic and $7.727bn external debt), marking a 4.6% rise since the end of 2000.

© Copyright MEES 2004.