Hariri aims for a big cut in the deficit

06 September 2002

Prime Minister Rafiq Hariri has presented an ambitious budget for 2003, with reduced spending and higher revenues set to result in a sharp cut in the overall deficit. Hariri has made clear that cutting the deficit is an essential ingredient in his government's efforts to sustain Lebanon's financial credibility. This will be put to the test at an upcoming donors' conference, dubbed Paris-2, at which Hariri is keen to raise significant amounts of fresh finance to help reduce the burden of servicing Lebanon's $29,000 million debt.

The government has emphasised that the proposed spending cuts for 2003 will be achieved through trimming administration costs, and will not affect investment in key social sectors such as health and education. The government will also aim to make savings through limiting capital investment to productive projects, as well as those projects financed mainly from concessionary foreign loans.

The extra revenues will come from a 15 per cent increase in tax receipt. Much of this will come from value-added tax (VAT), introduced in February 2002. There will also be increased revenues from higher local telephone call charges.

The net result will be a primary budget surplus of £Leb 2 million million ($1,320 million) and an overall deficit of the same amount, equivalent to 23.8 per cent of total expenditure. The government is on course to register its first post-war primary surplus in 2002. The deficit this year is also set to end up close to the target of 41.4 per cent of expenditure. This is largely because of the success of the VAT programme.

Over the next year, the government is also counting on securing significant revenues from privatisation. These proceeds will all be used to reduce public debt.

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