The Lebanese government backed down on 13 January in the face of mounting opposition and began amending the draft 2003 budget. However, the changes were insufficient to mollify the General Labour Confederation, which plans a demonstration on 15 January. The draft budget, first presented by Prime Minister Rafiq Hariri in August 2002, aims for a big cut in the deficit by reducing expenditure and increasing revenue, the latter through a 15 per cent increase in the tax receipt (MEED 30:8:02). The finance committee dropped four controversial items from the draft, linked to the benefits of teachers and state employees, having the week before dropped a clause taxing pensions. After the 13 January meeting Finance Minister Fouad Siniora told reporters that the lost revenue would have to be compensated for elsewhere in the budget. 'We will try to expand our search for new sources with the help of experts,' he said. The government had earlier challenged the opposition, saying that the contentious measures could be removed if alternatives revenue sources or spending cuts were proposed. Opposition leader and Chouf MP Walid Jumblatt has suggested a tax on treasury bonds, but Siniora is reluctant to take measures that might affect foreign investment, another key plank in the debt reduction programme. Hariri committed himself to privatisation and spending cuts to show his determination to cut the deficit ahead of the Paris II donors conference in November, at which international creditors extended $4,400 million in concessionary loans (MEED 29:11:02). On 14 January, the finance committee also dropped plans to increase stare sector working hours, persuading teachers to suspend their strike action.
Further pressure on the budget came from Labour Minister Ali Qanso on 13 January, as he warned that the National Social Security Fund (NSSF) will be in dire financial straits by the end of 2003 if not provided with adequate funding. The draft budget cuts NSSF financing to £Leb 20,000 million from £Leb 55,000 million. Qanso also complained that despite allocating the fund an annual £Leb 55,000 million since 1998, the total received over those four years had only reached £Leb 55,000 million. He called on the government and the private sector to settle their debt to the institution, and said: 'Two out of the three funds of the NSSF, namely the health insurance fund and the retirement fund, are already facing difficulties and are facing a critical financial situation.' The finance committee will continue to scrutinise the budget for possible amendments before it is presented to parliament again in two weeks.
Better news for Hariri came in a report released by the Finance Ministry on the last auction of treasury bills, illustrating the benefits of Paris II and other signs of international confidence in the capital markets. 'Interest rates on T-bills of all maturities declined by more than 40 per cent after Paris II, from 16.34 per cent to 9.20 per cent in the last auction on 26 December,' the report said. Three-month and six-month discount rates were also down, to 6.84 per cent and 7.86 per cent respectively, and dollarisation of the economy decreased to about 69.3 per cent at the end of 2002 compared with about 74 per cent six months previously. $350 million of the Paris II money, from Oman and Malaysia, has already arrived, and $300 each from the UAE and Kuwait is due to be received in the coming days.
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