15 June 2010
BEIRUT: Lebanon is expected this week to witness the birth of the 2010 budget after a long and sometimes heated debate on many of its articles.
Opposition ministers have been instructed to facilitate the work of Finance Minister Raya Haffar Hassan and drop any reservations on how the past governments spent $11 billion above and beyond the last budget which was approved in 2005.
Lebanon has already missed many opportunities to implement a big chunk of the reforms that were pledges during Paris III donor conference.
Economists and bankers agree that any privatization would have a minimal effect on the interest rates on Eurobonds and treasury bills.
They stress that interest rates in the international and local markets are already very low and it is not expected to fall further even if a privatization takes place.
“I don’t think the interest rates will fall by more than one percent if the government managed to secure $3 billion to $4 billion from privatization. If [the government] privatized the telecom few years ago then the impact would have been different from now,” one banker told The Daily Star.
Within this context, the IMF recommended, in its latest report released this week, a cautious approach to further policy rate reductions, as interest rates reached a breakeven point.
According to the latest figures by the Central Bank, the average yield on the three-month T-bills category declined by nine basis points to reach 3.91 percent, while the average yield on the six-month category fell by 19 basis points to hit 4.62 percent, and the average yield on the five-year category tumbled by 20 points to reach 6.28 percent.
But Hassan and some ministers still argue in favor of privatization even though any foreseeable transaction is ruled out due to the fact that all of the opposition ministers have strong reservations about this step.
The finance minister, trying to assuage the donor countries and International Monetary Fund, came up with the the phrase “partnership between the private and public sector.”
Convinced that selling the idea of privatization now will not receive wide popular support, Hassan underline the need to allow the private sector, namely banks, to take a major part in the financing of crucial infrastructure projects such as electricity and water dams.
She told her colleagues that the finance ministry does not have sufficient funds to finance some of the ambitious projects they presented. The minister said that one of the options is to borrow money from the local and international markets to finance major projects.
But Telecom Minister Charbel Nahas wants an end of this borrowing practice, adding that the first thing the Government should do is put a roof for borrowing. But this proposal was rejected by minister Hassan.
Nahas, however, did manage to persuade the government to have a new approach on the 2011 budget, stressing that the time has come to include all the budgets of the Council of the South and Council for Development and Reconstruction (CDR) into the Government budget.
The IMF noted that despite the resilience of its banking sector, Lebanon’s national debt currently tops $50 billion, some 153 percent of GDP.
However, the fund commended the reduction in the debt-to-GDP ratio and noted that a combination of high growth and rising primary surpluses have resulted in a 30 percent drop in the government’s debt-to-GDP ratio from a peak of 180 percent in 2006.© Copyright The Daily Star 2010.
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