Lebanon’s 2019 budget deficit will be much bigger than expected after a sharp drop in state revenues, caretaker Finance Minister Ali Hassan Khalil said on Wednesday, as the country struggles with its worst financial crisis since the 1975-90 civil war.
Speaking to reporters, Khalil did not say how much wider he expected the deficit to be but that revenues had contracted by about 40 percent over the last three months as the crisis hit consumption, imports, tax revenues and overall economic growth.
“Our revenues for the last three months of the year have decreased in a very big way as a result of the situation we are living with … we have numbers that are honestly very worrying,” he said.
In comments to broadcaster MTV, caretaker Economy Minister Mansour Bteish said Lebanon was losing about $70m to $80m a day, about half its usual income, because of the political paralysis.
Bteish said the situation had worsened and required quick solutions, but assured jittery depositors they should not fear for their savings.
Lebanon approved a 2019 budget last May that projected a deficit of 7.6 percent of gross domestic product (GDP). GDP measures the market value of all finished goods and services in an economy, and when the budget was approved in May, the assumption was that Lebanon’s economy would grow 1.2 percent.
But the economic crisis has deepened severely since then.
A shortage of foreign exchange has already led some banks to enforce capital controls though those have not been formalised by the authorities. Banks have all but blocked transfers abroad and capped withdrawals at a few hundred dollars per week.
The Lebanese pound meanwhile has lost approximately one-third of its value against the US dollar on a parallel market, the only source of dollars for most importers.
The restrictions have led some importers to slash their orders as they have been unable to source dollars at the official rate or make transfers abroad. Scores of companies have laid off workers or slashed their wages.
Khalil said public salaries were a priority and would be paid this month and in coming months, but that “doesn’t deny that we are faced with real difficulties in financing the state as a whole”.
It has been six weeks since Saad Hariri resigned as prime minister amid protests against the ruling elite, and Lebanon needs to form a new government to enact urgent reforms it hopes will net support from foreign donors.
France hosted a meeting on Wednesday of the International Lebanon Support Group, which includes Gulf Arab donors such as Saudi Arabia, major European powers and the United States, though the meeting is not expected to result in new pledges of aid.
Lebanon’s public debt burden, equivalent to about 150 percent of GDP, is one of the heaviest in the world. Last year’s deficit was equal to about 11.5 percent of GDP, and economic growth rates have been weak for years.