A three-year combined loan of $1,000 million from the governments of Kuwait, Saudi Arabia and the UAE to the central bank reaches maturity this year, raising fears that the bank's foreign currency reserves - currently standing at about $5,000 million - will be severely depleted. The central bank has been instrumental in keeping the government's finances afloat, intervening several times in the last few years to ensure the exchange rate remains stable at about £Leb 1,500 to the dollar.

Most recently, the central bank subscribed to a $1,000 million Eurobond issued by the government in March. 'The idea was for the central bank to gradually sell off this paper abroad, and so far it has been reasonably successful,' says an official at BNP Paribas, which jointly managed the bond exchange with Morgan Stanley. The Malaysian government is understood to have taken up some $250 million of the total $600 million subscribed so far. Central bank governor Riad Salameh says another $350 million is expected to be sold by mid June, helping the bank to replenish its foreign currency reserves.

The government has found less support from the local market. 'The main problem is that there is not the same appetite as last year among local investors,' says the official. 'The banking system is still quite liquid, but the problem now is that the Lebanese themselves are no longer keen to underwrite government debt. The government really has to put its house in order.'

Debt servicing is projected to reach $3,000 million by the end of the year, according to figures released by the Finance Ministry. The budget deficit rose to 45.2 per cent of total spending in the first four months of the year, despite the introduction of value-added tax (VAT) in February, which has so far raised some $154 million. The government expects VAT revenues to reach $500 million by the end of the year. Revenues from the sale of two GSM licences have failed to materialise after the government became locked in a dispute with Lebanon's two cellular operators, Cellisand LibanCell(see Telecoms & IT).