Lebanon's $900 million budget fix masks risks as arrears pile up

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Delayed payments for this year alone have exceeded $900 million, pushing the outstanding total to over $2 billion.

Wednesday 31, July 2019

The Lebanese government is deferring payments to contractors and public entities, improving the budget numbers but endangering a lifeline for businesses, reported Bloomberg.

Maroun Helo, the Head of the Lebanese Contractors Syndicate of Public Works and Buildings, said, “The government owes contractors about $300 million, half of which was incurred in 2019.”

Contractors are defaulting on debt and this is creating a very big crisis, added Helo.

The government of one of the world’s most indebted nations has pulled out all the stops to push through a budget touted as the most austere in the country’s history in the hope of appeasing investors, donors and rating companies. But the build-up of arrears that lies behind the turnaround is masking fiscal risks that could snowball later.

At stake is progress in Lebanon’s efforts to slash its budget deficit to a little less than 7.5 per cent of gross domestic product for 2019, from just over 11 per cent in 2018. Finance Minister Ali Hasan Khalil said arrears are paid gradually as liquidity becomes available.

According to the Lebanese centre for Policy Studies, under the 2019 budget recently ratified by parliament but not yet made public, a deferral of payments and postponement of ministerial projects make up almost half the total reduction in spending.

The full budget has not yet been published in the official gazette due to a dispute over a hiring freeze in the public sector.

The Lebanese finance minister said that the average economic expansion has not exceeded one per cent in the past five years and is projected at 1.2 per cent in 2019.

Central bank Governor Riad Salameh has put growth at zero so far this year.

The government’s plan for this year is just to cover public-sector salaries, debt-servicing costs and annual transfers for the electricity company, while it has allocated $1.18 billion for capital expenditure, a little less than $200 million has been spent in the first four months.

TAGS : budget deficit , 2019 budget, Economic growth

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