April 18, 2019 / 10:46 PM / 3 months ago

UPDATE 1-Lebanese banks should play role in reducing deficit -finance minister

* Finance minister signals moves to cut public-sector wage bill

* Says thousands in state earn more than president (Adds more from televised interview, background)

By Tom Perry and Laila Bassam

BEIRUT, April 19 (Reuters) - Lebanon’s finance minister said on Thursday that Lebanese banks should play a role in reducing the state’s budget deficit to complement measures planned by the government to rein in public spending.

Ali Hassan Khalil, in a televised interview, signalled government plans to cut the public-sector wage bill, saying a ceiling must be put on wages, benefits and bonuses that in thousands of cases exceed the salary paid to the president.

Wrestling with one of the heaviest public debt burdens in the world and years of low economic growth, the Lebanese government has vowed to carry out long-delayed reforms to put public finances on a sustainable path.

The state treasury is strained by a bloated public sector, high debt servicing costs and hefty subsidies spent on the power sector. Prime Minister Saad al-Hariri said this week that Lebanon faced catastrophe if the government did not carry out what may be the most austere budget in its history.

In 2002, following a Paris conference where the Lebanese government made commitments to reform, the Lebanese banks extended zero interest securities to the government.

Asked about the role of banks now, Khalil said they had “a responsibility ... to participate in the framework of reducing the deficit of our budget, which will be integrated with reform measures the state will carry out”.

Khalil told Reuters on Wednesday the draft 2019 budget projected a deficit of less than 9 percent of GDP compared to 11.2 percent in 2018 and included “wide reductions” in spending based on the need for “exceptional austerity measures”.

The budget, seen as a critical test of the state’s determination to reform, is based on an economic growth forecast of 1.5 percent in 2019, which could rise to about 2 percent as the economy picks up, Khalil told Reuters.

Addressing the public-sector wage bill, Khalil cited the need to tackle the multiple salaries and pensions earned by some current and retired state workers and cited the case of bonuses that in many cases exceeded the size of regular salaries.

He also criticised the wide application of an incentive originally intended for frontline army soldiers but is now enjoyed by many people serving in both the military and the security services, imposing a big cost on the treasury.

Speculation of cuts to public-sector salaries and pensions has triggered small protests this week, with retired army officers blocking highways with burning tyres on Tuesday.

Acknowledging the political sensitivities, Khalil said: “I know what I am saying will upset many people.”

But he added: “It is not reasonable that today there is a large number of people ... in the thousands, whose salaries are more than the president of Lebanon.” (Reporting by Tom Perry and Laila Bassam; Editing by Grant McCool and Peter Cooney)

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