The Finance Ministry intends to issue new Treasury bills over the next few days at at an interest rate of 10.30 percent instead of 7.50 percent like last year, a source said Thursday.
“The Finance Ministry plans to issue bonds in Lebanese pounds at a rate of 10.30 percent in the coming few days,” the source told The Daily Star. “The maturity of these T-bills will range between 10 and 15 years.”
The value of the bonds will be around LL2 trillion ($1.3 billion) and could be split into two issues.
Caretaker Finance Minister Ali Hasan Khalil and Central Bank Gov. Riad Salameh agreed on the new rates at a meeting a few days ago.
Salameh argued that the T-bills’ previous rate had been below the existing market rates.
Commercial banks are lending to their customers at interest rates of 10.50 percent in Lebanese pounds and sometimes higher.
The interest rates on Lebanese pound deposits in most commercial banks have even exceeded 10 percent, depending on the amount and maturity of the deposits.
The new T-bills will finance the salary scale in the public sector and meet the needs of the state for 2019.
The source said the Central Bank would no longer lend to the Finance Ministry and has advised the Treasury to issue bonds to the market, and banks in particular.
The new T-bills have already started putting pressure on the commercial banks, which have had to earmark part of their Lebanese pound liquidity to buy the bonds.
Facing a liquidity crunch in local currency, some banks have been forced to borrow from other banks at exorbitant rates. The interbank rates on the Lebanese pound Thursday reached 75 percent as demand for the national currency surged among the local lenders.
The interbank rate, which relates to lending between banks, stood at 50 percent in the past three days.
One banker told The Daily Star that some Lebanese banks were forced to borrow at these high rates because they had payment commitments on those particular days.
They expected the interbank rates to return to their normal averages at the end of this month once demand for the Lebanese pound falls. Average interbank rates on normal days have been close to 7 percent.
Prime Minister-designate Saad Hariri, in London to take part in the Lebanon-U.K. Business and Investment Forum, has invited Arab and foreign investors to increase dollar deposits in the Central Bank.
“We are talking with several Arab states, European countries and the U.S. to increase deposits into the Central Bank,” he said.
But economist Ghazi Wazni warned that the new rates on the T-bills would widen the budget deficit to alarming levels in 2019.
He expected the fiscal deficit to reach LL11 trillion, or $7.3 billion, in 2019 if the new government fails to implement the necessary reforms.
“Salameh lent the Finance Ministry LL8 trillion in the form of T-bills with an interest rate of only 1 percent. This move has allowed the Treasury to reduce its debt servicing. However, Salameh can’t afford to do this anymore and prefers that Khalil buy the T-bills from the private sector,” Wazni said.
Nassib Ghobri, head of the economic research at Byblos Bank, stressed that the specter of higher deficit resulting from the new T-bills should prompt the new government to proceed with reforms.
“Maybe this will motivate the government to implement reforms and improve tax collection,” he said.
Economists have repeatedly warned that Lebanon’s public debt, at around $84 billion, is no longer sustainable.
By Osama Habib
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