Dwindling government revenues and rising expenditures took their toll on the country’s already high deficit in the first five months of 2011, as the new finance minister is pressed to produce the 2012 draft budget before the end of this year.
According to a statement released by the Finance Ministry on Tuesday, Lebanon’s budget deficit in the first five months of this year jumped to 25.47 percent (or LL1.833 trillion) of spending from 19.48 percent (or LL1.303 trillion) in the same period of last year.
The primary surplus, excluding the cost of debt servicing, in the same reporting period fell to LL713 billion compared to LL1.228 trillion in the same period of last year, a decrease of LL515 billion.
Total government revenues up to May of this year reached LL5.363 trillion, falling by 0.42 percent compared to the same period of last year.
Tax revenues, including income tax, VAT and Customs, rose surprisingly by 5.96 percent but the non-income tax such as proceeds from the telecoms sector decreased by 37.11 percent.
On the expenditures side, government spending reached LL7.196 trillion, an increase of 7.58 percent compared to the same period of last year.
The ministry said that allocations to Electricite du Liban up to May of 2011 has risen by LL141 billion while LL4.158 trillion were allocated to cover the cost of debt servicing.
Cost of debt servicing rose by LL492 billion, the Finance Ministry said.
More than 48 percent of the government’s revenues goes to cover the cost of debt servicing and 35 percent covers the salaries of government employees.
The budget deficit has been sharply falling over the past five months after the Cabinet of then Prime Minister Saad Hariri collapsed following the resignation of 11 ministers.
Some economists argue that the tense political atmosphere coupled with deteriorating conditions in Syria and other Arab states had devastating effects on the economy in general and the state’s finances in particular.
The decision to slash the taxes on gasoline prices by LL5,000 per 20 gallons also dealt a blow to the treasury.
But despite the deteriorating economic conditions and dwindling government revenues this year, bankers are confident that they can easily swap the maturing treasury bills and Eurobonds in 2011 and even 2012 thanks to the massive deposits in Lebanese banks.
New Finance Minister Mohammad Safadi has an overwhelming task ahead of him and has to produce an acceptable 2012 draft budget before the end of this year.
The budget will probably not call for new taxes to appease the trade unions and opposition parties that are searching for any excuse to undermine the government of Prime Minister Najb Miakti.
Safadi will try to allocate additional funds to the Energy and Water Ministry to build several power plants to cut or even end the country’s notorious power rationing that has started since 1990.
He is also likely to earmark more money for infrastructure projects in different regions, with special emphasis on Tripoli, the hometown of the prime minister.
In the ministerial statement which was approved by 68 deputies, the government underlined the need to work closely with the private sector but fell short of saying it would privatize some of the state owned assets.
Lebanon’s public debt, which is more than $52 billion, is another big challenge for the Finance Ministry, although there is serious doubt that the Cabinet, with its current composition, could do anything to cut the size of this debt before the end of its term.