'The outlook revision reflects our view that the draft budget for 2004 implies a postponement in fiscal consolidations and delays in the envisaged reduction of the government's debt burden will result,' says S&P.

Finance Minister Fouad Siniora proposed a budget for 2004 that does not include new taxes or receipts from privatisation and securitisation operations (MEED 3:10:03). The budget projects the fiscal deficit will reach 27.7 per cent of spending, if planned privatisations and securitisations take place, or 30.8 per cent if none are implemented.

S&P upgraded Lebanon's outlook to positive from stable last December after the government secured $4,400 million in loans at the 'Paris II' donor meeting.

'The 2004 budget, when finally approved, is likely to target a primary surplus significantly lower than the initial ambitious target of 6-7 per cent set in the medium-term fiscal programme,' says S&P. 'Moreover, the much-delayed asset sales and securitisation transactions are now unlikely to take place soon, thereby delaying debt reduction.'

President Emile Lahoud and Prime Minister Rafiq Hariri are at odds on ways to proceed with reforms and their differences were expected to continue into 2004. Lahoud's term as president is due to expire next October.

'A rating improvement would depend on a faster pace of implementation of fiscal reforms, privatisation and securitisation operations as well as strengthened domestic and regional political stability,' the agency says.

www.meed.com/economy