Friday, February 02, 2007

Deficit balloons to nearly 40 percent of spending

Deficit balloons to nearly 40 percent of spending
By Osama Habib
Daily Star staff

BEIRUT: Higher spending and lower revenues took their toll on the government's 2006 finances as the budget deficit increased to almost 40 percent of public expenditures or LL4.581 trillion ($3.05 billion), the Finance Ministry said on Thursday. The ministry did not explain the reasons behind the deficit increase in its statement but most officials point to the negative fallout following the July-August war in 2006 and the ensuing showdown between rival political groups in Lebanon.

The statement said the budget deficit at the end of 2006 reached 38.59 percent compared to 27.42 percent in 2005, an increase of 11.6 percent. The budget deficit in the month of December alone rose to 53.78 percent compared to 40.25 percent in the same month of 2005. The public debt in 2006 is estimated to have reached nearly $41 billion, or 188 percent of the country's GDP. Total government revenues in 2006 reached LL7.295 trillion compared to LL7.405 trillion in 2005, a drop of LL110 billion.

The ministry said that VAT revenues fell by LL35 billion while tariffs on imports decreased by LL194 billion. "The Israeli naval, ground and air blockade on Lebanon during the war was the main cause behind the drop in revenues," the statement said. It added that the government subsidy on the prices of gasoline and fuel oil was another factor behind reduced income. The Finance Ministry stopped collecting VAT tax on fuel sold at gas stations in 2006 due to the sharp rise in the prices of oil on the international markets. VAT contributes the largest portion of the government's budget after tariffs and the telecom sector revenues. But the government intends to increase the VAT ceiling ratio to 12 percent in 2008 and 15 percent in 2010. Premier Fouad Siniora has also proposed lifting its fuel subsidy, which may increase the price of 20 liters of gas from LL22,000 to over LL30,000, according to some estimates. The statement said that revenues collected from the telecom sector fell by LL158 billion while income from Beirut Port dropped by LL58 billion. The government's total expenditures in 2006 reached LL11.877 trillion compared to LL10.203 trillion in 2005, an increase of LL1.673 trillion. The cost of debt servicing, the highest spending item, reached LL4.555 trillion in 2006 compared to LL3.534 trillion in 2005, an increase of LL1.023 trillion.

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