[January 05, 2009]

Shatah revises growth projection for Lebanese economy down to 3 percent: Global financial crisis expected to reduce crucial remittances

BEIRUT, Jan 06, 2009 (The Daily Star - McClatchy-Tribune Information Services via COMTEX) --
Finance Minister Mohammed Shatah on Monday revised Lebanon's projected GDP growth for 2009 to 3 percent from 5 percent in light of the global financial crisis and the expected economic slowdown in the oil-rich Gulf Arab states. The minister, who was speaking at a press conference to unveil the 2009 draft budget, also projected inflation to reach 5 percent this year.

Lebanon counts heavily on the remittances of Lebanese expatriates to shore up the economy, which was badly battered by a series of security incidents and political turbulence since the assassination of former Prime Minister Rafik Hariri in February 2005 and a devastating war with Israel during the summer of 2006.

The World Bank estimated capital inflows to Lebanon in 2008 at $6 billion.
But experts fear that the remittances will fall once Lebanese working in the Gulf states are laid off, pack their belongings and return home.

"These projections were also based on an oil price of $54 a barrel," Shatah said.
The minister also cautioned that if Lebanon failed to privatize the country's two cellular networks by the third quarter of this year, the cost of debt servicing would rise by LL676 billion ($450 million).

The chances of selling the lucrative telecom sector in Lebanon are getting dimmer as most economies in the world suffer a severe shortage of liquidity.

Telecommunications Minister Jebran Bassil has said repeatedly that the government may not be able to fetch a good price from the licensing of the two cellular networks due to the global credit crunch.

The 2009 draft budget, which is yet to be approved by the Cabinet and Parliament, projects expenditures at LL15.552 trillion ( close to $10 billion), an increase of 35 percent compared to the 2008 budget and revenues at LL11.1139 trillion, an increase of 33 percent. The budget deficit for 2009 is projected at LL4.413 trillion, or 28.37 percent of spending and 9.41 percent of the country's GDP.

The cost of debt servicing is expected to represent 39 percent of total spending.
The salaries of government employees have been put at LL5.224 trillion, or 33.6 percent of the total spending. The Finance Ministry has allocated an additional LL1.380 trillion to subsidize salary increases for civil servants. This means the cost of debt servicing and salaries represent 82 percent of the total 2009 draft budget.

Shatah said that the interest that will be paid on Treasury bills and sovereign Eurobonds in 2010 is expected to reach LL6.430 trillion if the privatization of the telecom does not take place by the third quarter of 2009.

He added that the Treasury's subsidies of troubled Electricite du Liban (EDL) in 2009 are expected to reach LL1.486 trillion. Successive governments have been heavily subsidizing the cost of fuel oil that runs all of the country's power plants.

Shatah said that the minister of energy is still trying to hammer out a plan to reduce the losses of EDL.

Asked how the ministry would make up for the additional allocations for salaries of government employees, Shatah said that the treasury intends to collect taxes on all properties that were built along the coast of Lebanon during the 1975-1990 Civil War.

He added that the government can collect around LL30 billion from such levies.
The minister also hopes to raise the taxes on interest rates on customer deposits with banks from 5 percent to 7 percent in 2009.

But his proposal has been rejected by the Association of Banks in Lebanon.
Shatah acknowledged that if the government succeeded in selling the telecoms sector in the third quarter of this year, the state's revenues from this sector would fall by LL600 billion a year.

"But we should take into consideration that all the proceeds from privatization would be used to reduce the cost of debt servicing," he said.

The Finance Ministry said that it would not raise the value added tax ceiling in 2009 or slap additional taxes on taxpayers.

Shatah added that the public debt in 2008 stands at $47 billion and this figure would reach $50 billion in 2009 if the privatization of the cellular networks did not take place in the coming few months.

The minister also stressed that the Finance Ministry has allocated LL75 billion to the Interior Ministry to cover the cost of the parliamentary elections in June 2009.

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