Lebanon PM promises to cut deficit and push ahead with reforms

Lebanon’s prime minister pledged to stabilize the country’s economic problems and aim for a budget deficit of around 7% next year.

Speaking to CNBC’s Hadley Gamble in Beirut, Saad Hariri said: “I understand that we have a problem but I am extremely confident that we can get out of this problem if we follow through all the steps we put in front of us.”

“What we are doing is, fixing our debt to GDP (gross domestic product), our deficit and the budget to 7.6% this year, we want to go down to 7% next year, or maybe a little bit less. And then, you know, continue on stabilizing this deficit,” he added in the interview aired Wednesday.

Hariri also said he was committed to keeping the Lebanese pound’s currency peg to the U.S. dollar. “We believe in the government and in the Ministry of Finance (and) also the central bank, we believe that keeping the Lebanese pound at 1,500 is the only way, only stable way to move forward with these reforms.”

On Monday, Lebanon was on the brink of declaring a state of economic emergency, initiating plans to accelerate reforms in an effort to save the country’s ailing economy. Hariri reiterated the importance of reducing the country’s deficit to reporters the same day, following a meeting between his cabinet and other political leaders.

The meeting came amid heightened tensions on the southern border of Lebanon between Hezbollah and Israel. It was not an official gathering of ministers, but was seen as necessary to gain consensus within the government.

Lebanon is among the most indebted countries in the world, with public debt equating to about 150% of its gross domestic product (GDP), according to the International Monetary Fund (IMF). The parliament passed a new budget in July, which contained a number of measures to cut the country’s deficit to 7.6% of GDP, from 11.5% last year. The austerity measures will allow Lebanon to unlock $11 billion in aid pledged by international donors at the CEDRE Conference in Paris in April, 2018.

Many countries with the same level of debt as Lebanon would generally seek a bailout, but Hariri said that’s not necessary for his country.

“We didn’t go into a program because we feel the procedures and the reforms we are going to do are the same things the IMF are advising us to do.”

In August, Fitch ratings downgraded the nation’s credit rating further into junk status. S&P Global, meanwhile, maintained its current rating but said its outlook remained negative. The ratings agency also said it may “lower Lebanon’s ratings within 12 months” if its budget deficits continue to rise and banking system deposit inflows slow further. On Wednesday, S&P warned on the country’s dwindling foreign exchange reserves, saying it was at risk of a downgrade and a potential test of its currency peg.

Hariri told CNBC that he’s confident that the country will make the changes needed to reduce its deficit. “S&P gave us six months, and we are going to use this six months to pass every single reform in Lebanon. I ask investors to sit and watch us. You will see, like the S&P gave us this chance, give us this chance. I am confident we will reach those numbers.”

The CEDRE Conference saw pledges from France totaling $670 million, $1.35 billion in loans from the European Bank for Reconstruction and Development and $500 million from The Kuwait Fund for Development. The World Bank also pledged $4 billion in soft loans while the Islamic Development Bank pledged $750 million.

In order to unlock the money there’s still work to be done, but the prime minister explained that the loans pledged would allow Lebanon to invest in infrastructure which would put the country on a path to growth.

“What we need to do is the structural reforms and the financial reforms that stabilize the country and that will build the platform to start (investment) in the country,” he told CNBC.

CNBC