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25 April 2024

'No risk’ to Lebanon public finances

By Agencies


The public finances of debt-laden Lebanon face "no risks" in 2008, Finance Minister Jihad Azour said, despite a deep political crisis that led Standard & Poor's to cut its credit rating for the country.

Azour told Reuters the public finances would be helped by factors including stable interest rates and tight fiscal control. The state aims this year to match or exceed a primary budget surplus equal to 3 per cent of gross domestic product.

The country, saddled with public debt equal to about 171 per cent of GDP largely due to a 1975-90 civil war, would issue Eurobonds to refinance $1.5 billion of debt, most of it set to mature in August, Azour said in an interview late on Monday.

In January Standard & Poor's cut its long-term sovereign foreign currency credit rating for Lebanon by one notch to "CCC+" from "B-", citing the political conflict between a governing coalition and an alliance of opposition factions.

"For 2008 there are no risks on the financing of the government," Azour said. "I don't think, despite the political difficulties, that we will have a financing problem."

The governing coalition has been locked in a power struggle with the opposition for 16 months in a conflict that has led to street violence, paralysed much of government and left the country without a president since November.

It is the worst internal conflict since the civil war. Much of the country's $42.06 billion public debt - proportionately the highest debt burden of any country rated by Moody's - was accumulated from the costs of reconstruction after that war.

Lebanon also suffered some infrastructure damage during a 34-day war between Israel and Hezbollah guerrillas in 2006. However, Arab and international donors financed Beirut's plan to recover from that war.

Moody's kept its rating for Lebanese government bonds at its low B3 level last month.

Lebanon raised $875 million on Friday to refinance maturing debt through a five-year Eurobond issue. "We still have $1.5 billion [maturing this year]," Azour said. Most of it would mature in August, he said.

The government had planned to use income from privatising two mobile phone firms to pay off debt but the sale has been delayed due to the political crisis.


"Our strategy for this year is to secure our funding ahead of time in order to avoid any negative impact from political developments on the finances of the treasury," Azour said.

"I don't give dates," he said. "In both [2007 and 2006] we were able to roll over $28 billion of debt that matured."

Most of the public debt is held by Lebanese banks. About half of it is in foreign currency.

"We have liquidity that exceeds $1 billion available at the treasury. It is a very strong cushion," Azour said.

The government has also been seeking to shift some $1 billion pledged by international donors in 2007 for project finance towards budgetary support to help ease the debt burden.

The funds are part of $7.6 billion pledged at the 2007 Paris donors' conference. But Azour said they could not be used because parliament, which must approve the new funds, is paralysed by the political crisis.

"For the foreign borrowing, we need laws, or parliamentary approval, that we don't have," Azour said.

Interest payments on the public debt amounts to $800 million until the year-end, he said. A stable outlook for interest rates was good for the public finances, he added.

"I don't foresee an increase in interest rates... I see stabilisation. If the political situation improves, my expectation is that interest rates will go down substantially," he said.

Lebanon reduced its debt-to-GDP ratio to 171 per cent in 2007 from 178 per cent the previous year thanks partly to the primary budget surplus of 1.1 trillion Lebanese pounds, or 3 per cent of GDP.

"Our objective in 2008 is to beat this number. This is why we are tightening control on the current expenditure and we are improving our tax management in order to improve our collection."

The Beirut governing coalition is backed by western and Arab states including Saudi Arabia. "We have positive indications that the Saudis will provide us with financial assistance in terms of a deposit at the central bank. As for the timing, conditions, things are not concluded yet," Azour said. He declined to give the amount.

"It will give a very positive signal to the market." (Reuters)