debt and deficit to widen
Slow growth and savings due to lower oil prices won’t lead to deterioration
Government debt is likely to trend upwards in 2015 and 2016, to 126 percent of the Gross Domestic Product (GDP), after falling in 2014, according to Moody's Investors Service. The report published recently, said that the country's deficit and debt burdens are likely to widen during these two years.
“This low percentage of debt to the GDP is most probably calculated according to the net public debt value, which is below $60 billion,” said Marwan Barakat, Head of Research at Bank Audi. Public debt to GDP stood at 134.9 percent at the end of April, according to Barakat.
The public debt to GDP peaked in 2006 at 182 percent and decreased to 134 percent in 2011. “We foresee stability in the public debt to GDP in the upcoming four years, as the economy is growing at a slower pace than the period of 2006-2010, which was a main reason for fueling increase of public debt to GDP,” said Barakat.
Moody’s noted, however, that the country has demonstrated a strong capacity to withstand even higher debt levels and banks continue to be willing and able to provide financing to the Government, supported by strong deposit inflows.
A higher fiscal deficit will primarily result from spending pressures, the report said. Although transfers to Electricité du Liban continue to form a significant portion of expenditure, spending on public wages will continue to rise, due to additional security personnel, the report said. Nevertheless, the fiscal deficit will likely remain below the levels reached in 2012 and 2013, according to Moody's.
“The fiscal deficit is not expected to deteriorate in the near to medium term,” said Barakat. “Oil prices are giving the Government room to build savings, which may be used to increase capital expenditures. If the wage scale is approved, its revenues will be already available,” he said.
Fiscal deficit to the GDP decreased to 7.5 percent in 2010, down from 15 percent in 2006. According to the 2015 draft budget, it is expected to narrow to 8.5 percent. “Debt and deficit are still quite high, although they are not expected to widen. They need to be contained to maintain economic stability,” said Barakat.
Moody’s said that disagreements among political factions remain a challenge, as reflected by the inability to designate a new president. “Political polarization has considerably weakened policy effectiveness. The most pressing fiscal reforms have been on the drawing board for years and are unlikely to be addressed,” it said.
Reported by Leila Rahbani
Date Posted: Jun 26, 2015