source: iloubnan.info

BEIRUT | iloubnan.info - March 24, 2013, 07h31

Barclays Capital cautioned from the severe deterioration in Lebanon's public finance performance and warned about future prospects. It estimated Lebanon's fiscal deficit to have widened to 9.4% of GDP in 2012 from 6% of GDP in 2011. It noted that the deficit widened by 68% last year due to a 14.1% increase in spending and almost flat overall revenues.

It added that Lebanon's overall public spending was equivalent to 31.9% of GDP last year, with the spending level higher than in neighboring countries. It said that the rise in expenditures reflects a 20% increase in transfers to Electricité du Liban (EdL) and a more than threefold rise in unidentified budgetary items that totaled $2.5bn last year and exceeded the size of the overall fiscal deficit in 2011.

It indicated that the subdued public revenues last year reflect the weak state of the domestic economy. Further, it said that Lebanon's primary budget balance shifted to a deficit of 0.3% of GDP in 2012 from a surplus of 4.3% of GDP in 2011, constituting the first primary deficit since 2006. It noted that the deterioration in Lebanon's public finances reversed the dynamics of the public debt, as the debt level increased to 138.1% of GDP in 2012 from 137.4% of GDP in 2011, constituting the first increase in the debt level since 2006.

In parallel, Barclays Capital considered that the approval of the increase in public sector wages would put at risk the sustainability of public finances in 2013 and beyond. It projected Lebanon's fiscal deficit at 9.5% of GDP in 2013 compared to a previous forecast of 8% of GDP, due to weak growth prospects and the approval of the increase in public sector wages, even if the Cabinet agrees on the sources of financing.

It revised downward its real GDP growth projections for Lebanon to 2% in 2013 from a previous forecast of 2.5% due to increased prospects of political instability. It said that the government has considered a number of measures to cover the total cost of the increase in public sector wages estimated at between $1.3bn and $2bn. But it pointed out that the proposed measures may not gather political consensus, which would force the government to approve a limited set of measures and, in turn, cause the deficit to further widen. Also, it forecast the primary fiscal balance to post a deficit of 1.2% of GDP in 2013 relative to a previous forecast of a surplus of 0.6% of GDP. It expected the debt-to-GDP ratio to increase to 140% of GDP, which would put the public debt ratio again on an unsustainable upward path following several years of decline.

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