LONDON: Lebanon’s government plans to issue a $450m Eurobond by the end of this year to meet the country’s funding needs, the country’s finance minister said.
Ali Hassan Khalil said the government also planned to sell a further $4.4bn in Eurobonds over the next three years. He also announced plans to raise VAT and other taxes next year.
Khalil said he hoped to get legislative approval for the $4.4bn bond issues by early November.
“We have sent a draft law to the parliament to approve the issuance of $4.4bn of Eurobonds. We are hoping to get the approval by next month,” Khalil said in an interview for the Reuters Middle East Investment Summit.
“The issues would cover the needs of Lebanon for the years of 2015, 2016, 2017 which are equal to $4.4bn. The approval will be for this amount but it will not be issued all at once.”
Khalil described the request as “normal legislative” procedure to allow the ministry to go to the market when there is a need. Lebanon’s parliament is expected to meet in November. “As for this year we will issue around $450m by the end of the year to finance the needs of the country,” he said.
Lebanon’s economy grew rapidly until 2011, when political bickering toppled the government of Sunni leader Saad Al Hariri and war in neighbouring Syria slowed down the economy.
Khalil said he expected the economy to grow by 2 percent this year, slightly up from a projected 1.5 percent which was the same as in 2013. The IMF in May forecast Lebanon’s economy to grow by two percent this year and a “modest four percent over the medium term”.
The three-year civil war in Syria is also hurting investment and leaving Lebanon struggling to cope with an influx of Syrian refugees, estimated at a third of the Lebanese population of four million, putting a major burden on the economy and the country’s infrastructure.
But Khalil described the overall fiscal situation as “stable” and said the economy was already showing signs of recovery. For example, for the first time in three years the country registered a budget surplus and a slight increase in its balance of payments this year, he said.
In its latest Eurobond issue in May, Lebanon managed to sell its long term 10-years treasury bonds at a lower interest rate of 7.28 down from 8.24, which Khalil said was a sign that investors’ confidence in the country remained high.
“This confirms the confidence of the investors in Lebanon and also the confidence of the lenders — that the government will fulfil its obligations for the long term.”
“Sovereign credit risk is declining. There maybe some jumps related to the security or political situation but its path is (going) down,” he added.
Khalil said that even though public debt has increased to $66bn and is expected to rise above 145 percent of GDP this year, the fiscal situation was better than expected, largely due to reduced expenditure.
In April, Khalil said the debt stood at $64.9bn, more than half of it in local currency.
“Reducing the expenditure has its impact on the investment spending, it has some negative impact but at the same time it reduced the percentage of deficit,” he said.
Khalil said he hoped the cabinet would approve the 2015 budget soon in which he suggested several tax increases to raise revenues and cover spending.
Among suggested tax increases was a one percentage point addition to value added tax which now stands at 10 percent. In previous years political tension has delayed the endorsement of the budget.
Reuters
