Good signals come out of Lebanon's 2018 budget

Good signals come out of Lebanons 2018 budget
Lebanese central bank chief Riad Salameh says a growth rate of 2.5-3 per cent is a 'conservative' goal.

Beirut - Central bank describes IMF's criticism as 'realistic'



By Reuters

Published: Sat 17 Mar 2018, 7:30 PM

Last updated: Sat 17 Mar 2018, 9:32 PM

IMF criticism of Lebanon's public finances is valid, but the country's draft 2018 budget sends a good signal as it seeks to cut one of the world's highest debt-to-GDP ratios from above 150 per cent, the head of its central bank said.
Riad Salameh also said in an interview with Reuters that economic growth could be boosted by 1 percentage point for every $1 billion of donor funding that the government secures and spends. To help stimulate its battered economy, Lebanon is seeking up to $16 billion for infrastructure investment from investors and donors.
Growth and state revenues have been low for years, undermined by war in neighbouring Syria and domestic political inertia.
The central bank is due to publish its official 2018 growth outlook in July, and Salameh said a rate of between 2.5 and 3 per cent was a "conservative" target.
That excluded the potential impact of the $16 billion capital investment plan, for which fundraising will begin with an April 6 donor conference in Paris.
"If we start seeing projects being executed... we can estimate that for every $1 billion spent we can increase growth by 1 percent," Salameh said. The International Monetary Fund, which expects 2017-2018 growth of around 1-1.5 per cent, said last month that Lebanon's debt trajectory was unsustainable and fiscal and structural reforms were urgently needed.
Salameh described the IMF report as "realistic".
Lebanon's parliament is under pressure to approve the budget before the Paris conference, which it is expected to do.
The draft, with a deficit matching last year's at 7.3 trillion Lebanese pounds ($4.8 billion), demonstrated a "serious effort" to address concerns and sent "a good signal to the markets," Salameh said.
The gap could be cut further with the help of structural reforms, but these were unlikely until after parliamentary elections on May 6.
On Thursday Lebanon agreed its first two deals with the European Bank for Reconstruction and Development, which focuses on private sector-led development.
Salameh said the government's embrace of the private sector was a positive turn and "a good sign for the creation of employment and decreasing corruption".
"We consider it a major reform in a trend where the size of the government in the economy has been increasing year-on-year."
 
With growth low, Lebanon relies on deposit inflows to local banks from its large diaspora to fund the government and maintain central bank defences.


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