Lebanon asks banks to help in reducing budget deficit

beirut — Lebanon’s finance minister said on Thursday that Lebanese banks should play a role in reducing the state’s budget deficit to complement measures planned by the government to rein in public spending.

Ali Hassan Khalil, in a televised interview, signalled government plans to cut the publicsector wage bill, saying a ceiling must be put on wages, benefits and bonuses that in thousands of cases exceed the salary paid to the president.

Wrestling with one of the heaviest public debt burdens in the world and years of low economic growth, the Lebanese government has vowed to carry out long-delayed reforms to put public finances on a sustainable path.

The state treasury is strained by a bloated public sector, high debt servicing costs and hefty subsidies spent on the power sector. Prime Minister Saad Al Hariri said this week that Lebanon faced catastrophe if the government did not carry out what may be the most austere budget in its history.

In 2002, following a Paris conference where the Lebanese government made commitments to reform, the Lebanese banks extended zero interest securities to the government. Asked about the role of banks now, Khalil said they had “a responsibility ... to participate in the framework of reducing the deficit of our budget, which will be integrated with reform measures the state will carry out”.

Khalil told Reuters on Wednesday the draft 2019 budget projected a deficit of less than 9 per cent of GDP compared to 11.2 per cent in 2018 and included “wide reductions” in spending based on the need for “exceptional austerity measures”.

The budget, seen as a critical test of the state’s determination to reform, is based on an economic growth forecast of 1.5 per cent in 2019, which could rise to about 2 per cent as the economy picks up.