Rayya al-Hassan al-Haffar: Lebanese economy has great potential

By Ayoub Khaddaj in Beirut
For Al-Shorfa.com
2010-08-28

[Ayoub Khaddaj/Al-Shorfa] Rayya al-Hassan al-Haffar discussed how Lebanon's economy continues to meet performance expectations.

Lebanese Minister of Finance Raya al-Hassan al-Haffar says there is an intense debate in parliament over the first chapter of the draft budget introduced by her ministry – the first such budget in five years.

The debate relates to borrowing and to the freedom granted to the ministry of finance to manage the public debt, she told Al-Shorfa during an exclusive interview.

The 2010 budget shows fiscal expenditures of $13 billion, and revenues of $8.5 billion, resulting in an expected deficit of 35.4%. During 2008 and 2009, Lebanon achieved a high growth rate of 9%. Based on the current budget, it is it expected to reach at least 4.5 %. Lebanon's solid financial performance has enabled it to become a safe haven for funds in light of the recent global financial crisis.

Accordingly, deposit levels in Lebanese banks have increased at a rate 23% higher than for the year 2009 and it sustained its growth to reach in the current year 100 billion dollar; three times the GDP.

Al-Shorfa: Tell us about the importance of the 2010 budget.

Al-Haffar: It is important because it is the first one after five years of no budgets due to the prevailing circumstances in the country at that time. The budget helps the government to implement its promises to its citizens and permits it to carry out investment projects. In the past, due to the absence of previous budgets, the spending serviced only the expenditure, which prevented us from carrying out important projects to boost the Lebanese economy.

Al-Shorfa: How will the new budget fulfil the promises the government made to citizens in its ministerial statement?

Al-Haffar: The presence of a national unity government with an ambitious ministerial programme that prioritises the needs of the citizens, along with the existence of a positive economical situation, can improve the economy. This was reflected in an increase in the investment expenditures in the current budget relative to GDP to double in comparison to previous years. And, this is essential to proceed in the fixing the infrastructure that enables us to carry out the required economic reforms.

Al-Shorfa: Which sectors will receive increased spending in the new budget?

Al-Haffar: The most important investment expenditure contained in the budget will be electricity at $1 billion; telecommunications and roads are about $250 million; and social and health benefits are over $800 million. And Agriculture.

Al-Shorfa: What are the main elements of the draft budget?

Al-Haffar: The potential of the Lebanese economy is greater than it seems, even though we are already achieving high growth rates-- one of the highest in the world. What is limiting us from achieving our potential is the existence of archaic infrastructure that is unable to keep up with all the existing development and that has yet not been renovated.

Therefore, we are focusing our efforts on the development of this infrastructure. In addition, we have prepared an inventory of the government's accounts payable for contractors, expropriation, optional social security and social security in order to start paying them in phases because this help public institutions fulfil their role.

Our main goal in this budget is to maintain the ratio of debt to GDP at the same level as in the three previous years where we achieved high ratios, especially after Paris III, when the financial correction we made allowed us to achieve a high growth in the economy and an improvement in the collected revenues and to allocate expenditures resulting in an initial surplus and subsequently a reduction in the ratio of debt to GDP to 148% today.

In the 2010 budget, although the investment expenditures have increased, we have tried to maintain the aforementioned ratio in order for international institutions to be able to monitor our implementation of the financial correction. And in the event the growth continues at the same trend contemplated the first six month of the current year, we will be capable of reducing the ratio to less than 147%. We have prepared our budget on the condition that we want to increase the expenditures but without increasing the debt to GDP ratio.

Al-Shorfa: To what extent is Lebanon capable of meeting the requirements of international donors and its commitments under Paris III?

Al-Haffar: The government has met its obligations related to the financial correction under Paris III faster than we expected during the 2007 conference. Accordingly, the achieved reduction in the debt to GDP ratio from 185 % in 2007 to 148% is a major financial correction that any government aspires to achieve in a three-year period.

What is important is to preserve this downward trend. Accordingly, if we increase the investment expenditures to improve the infrastructure, we insist that such an increase is only for one year. In the year 2011, the increase will not be of that amount, because we need to continue to reduce the debt's ratio.

Al-Shorfa: After eight parliamentary sessions were held to discuss the draft budget, are there any obstacles that could prevent it from being passed? Do all political parties agree on the substance of the draft budget?

Al-Haffar: We are still debating the first chapter of the draft. The parliamentarians have spent a lot of time debating the borrowing article, as they consider it the essence of the budget. The discussion has revolved around setting a borrowing cap to be given by the parliament to the government.

In addition to the confusion between the deficit and the borrowing, a number of parliamentarians have requested to set a cap on the debt.

And I tried to explain to them that the cap should be set for the deficit but not for borrowing as the latter is to service the deficit. When we have a situation where there is a deficit and many expenditures, the government, in the absence of revenues, is obliged to borrow in order to pay them off. Consequently we should limit deficit, which by decreasing, decreases the debt.

And we have agreed by consensus on a formula in relation to article 5 that does not restrict the mission of the ministry of finance in meeting expected financial commitments including debts and the service of expected shortfalls on one hand and that allows us on the other hand to alleviate the fear of some parliamentarians with respect to the role of the ministry.

We will witness in the next few days a debate related to borrowing in order to restrict the ability of the ministry of finance to manage public debt.

We fear that such an event would affect our ability as a ministry to fulfil our obligations especially that Lebanon has never failed to meet his financial obligations, not even during the war.

We should be able at the ministry to manage the public debt according to market conditions, interest rates and terms. Hence, the ministry of finance should be given flexibility in managing this debt.

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