Lebanon plans $450 mln Eurobond issue by end-year

Lebanon's government plans to issue a $450 million Eurobond by the end of this year to meet the country's funding needs, the country's finance minister told Reuters.

Ali Hassan Khalil said the government also planned to sell a further $4.4 billion 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 $4.4 billion bond issues by early November.

"We have sent a draft law to the parliament to approve the issuance of $4.4 billion 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 $4.4 billion. 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 $450 million 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 neighboring 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 2 percent this year and a "modest 4 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 4 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 fulfill 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 $66 billion 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 $64.9 billion, 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.

Tax hikes

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. It was not clear when the government would endorse the 2015 budget.

"Any increase in the expenditure in the country requires taking these tax measures which we insist on," he said.

Lebanon, which hosts around 1.5 million Syrian refugees, has also seen violence spill over from Syria with bombings in Beirut, fighting in the northern city of Tripoli, and rocket attacks on Bekaa Valley towns close to the frontier.

Apart from adding to the strain on electricity and water supplies, the Lebanese resent Syrians for taking jobs, driving down wages and overloading schools and hospitals.

Khalil said at the end of 2013, Lebanon presented the United Nations with a paper estimating the costs of refugees on the economy at $7.6 billion but the country saw little response.

"There is a huge pressure from the refugees on the economy in the country specially on jobs. So far the response of the international community and organizations is limited and is not at a level which we can consider a serious contribution in covering this cost."

He said the international community was not asked to finance the Lebanese economy directly but to support different sectors dealing with the displaced and to see to their needs.