VZCZCXRO4577
RR RUEHAG RUEHBC RUEHDE RUEHDF RUEHIK RUEHKUK RUEHLZ RUEHROV RUEHSR
DE RUEHLB #0042/01 0121120
ZNR UUUUU ZZH
R 121120Z JAN 09
FM AMEMBASSY BEIRUT
TO RUEHC/SECSTATE WASHDC 3970
INFO RUEHEE/ARAB LEAGUE COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RHEHAAA/NSC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 02 BEIRUT 000042 
 
SENSITIVE 
 
SIPDIS 
 
STATE FOR NEA/ELA 
STATE PASS USTR FRANCESCKI 
STATE PASS USAID BEVER/LAUDATO/SCOTT 
TREASURY FOR MNUGENT AND SBLEIWEISS 
USDOC FOR 4520/ITA/MAC/ONE 
NSC FOR ABRAMS/RAMCHAND/YERGER/MCDERMOTT 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PREL PGOV LE
SUBJECT: LEBANON: 2009 BUDGET DRAFT PROJECTS THREE PERCENT GROWTH 
AND DEFICIT OF 9.4 PERCENT OF GDP (ECONOMIC WEEK IN REVIEW, JANUARY 
5 - 11, 2009) 
 
CONTENTS 
-------- 
 
-- 2009 BUDGET DRAFT PROJECTS THREE PERCENT GROWTH AND A BUDGET 
DEFICIT OF 9.4 PERCENT OF GDP... 
-- ... AND DOES NOT ACCOUNT FOR TELECOM PRIVATIZATION PROCEEDS 
-- TELECOM CONFERENCE SUGGESTS PARTIAL MOBILE PRIVATIZATION 
-- TELECOM MINISTRY AIMS TO INCREASE PENETRATION RATES 
-- NATIONAL PASSENGER CARRIER MEA WILL NOT LIST SHARES ON STOCK 
EXCHANGE IN 2009 
-- AGRICULTURAL PROJECTS FUNDED WITH USG WHEAT GRANT ONGOING 
 
 
2009 BUDGET DRAFT PROJECTS THREE PERCENT GROWTH 
AND A BUDGET DEFICIT OF 9.4 PERCENT OF GDP... 
-------------------- 
 
¶1. (U) In a press conference on January 5, Minister of Finance (MOF) 
Mohammad Chatah indicated that the MOF has submitted to the Cabinet 
a revised 2009 Budget draft based on new economic projections. The 
MOF lowered Lebanon's projected GDP growth for 2009 to three from 
five percent, in light of the global financial crisis and the 
expected economic slowdown in the Gulf countries.  Inflation is 
projected at five percent in 2009.  Chatah noted that the MOF 
calculated oil spending at an average oil price of $54/barrel based 
on November 2008 IMF estimates. 
 
¶2. (U) Chatah said the 2009 Budget draft projects a total deficit of 
$2.9 billion, or 28.37 percent of total spending and 9.41 percent of 
GDP.  Total expenditures are projected to reach approximately $10.3 
billion, while total revenues are estimated to reach about $7.3 
billion.  Debt service is expected to reach $4 billion or about 39 
percent of total spending. 
 
¶3.  (SBU) In the 2009 Budget draft, the GOL is asking for 
parliament's approval to borrow in foreign currencies up to a 
ceiling of $4 billion, MOF senior Economic officer Zeina Kassem told 
us January 9.  The Cabinet is due to begin discussing the 2009 
Budget draft this week. 
 
... AND DOES NOT ACCOUNT FOR TELECOM 
PRIVATIZATION PROCEEDS 
-------------------- 
 
¶4. (U) Meanwhile, Chatah also said the 2009 Budget draft does not 
account for the impact of telecom privatization on revenues and debt 
service. He noted that if the privatization of the two mobile 
operators -- the proceeds of which are expected to be used to 
decrease the public debt -- does not take place by the third quarter 
of 2009, the cost of debt service would rise by $450 million in 
¶2010. 
 
TELECOM CONFERENCE SUGGESTS 
PARTIAL MOBILE PRIVATIZATION 
-------------------- 
 
¶5. (U) On December 30, 2008, the Ministry of Telecommunications 
(MOT) held a conference entitled "Telecom for Lebanon - Tapping the 
Diaspora," which attracted around 30 Lebanese telecom experts from 
the Lebanese diaspora to share their knowledge on telecom 
liberalization, and discuss the MOT's policy paper for the medium 
and long-term development of the sector.  Participants suggested 
"partial" liberalization of the two mobile companies, whereby the 
GOL would remain the main owner, while proceeding with the 
establishment of a third mobile operator, Liban Telecom.  An advisor 
to Telecom Minister Gebran Bassil was publicly quoted as saying that 
partial liberalization would ensure the already high revenues the 
MOT transfers to the GOL each year (estimated at $1.3 billion in 
2008, or a 12 percent increased compared to 2007), a reduction in 
mobile tariffs, and improvement in the quality of services.  A 
committee of local and diaspora experts was set up to follow-up on 
the conferences' recommendations and to organize similar gatherings 
in the future. 
 
TELECOM MINISTRY AIMS TO 
INCREASE PENETRATION RATES 
------------------- 
 
 
BEIRUT 00000042  002 OF 002 
 
 
¶6. (SBU) Bassil also said the MOT is planning to increase the 
capacity of the mobile network by 800,000 additional lines. The 
network will be able to accommodate 75,000 new subscribers by the 
end of January 2009, he said. He also estimated the number of 
high-speed internet subscribers at 80,000, and noted that this 
figure should reach 100,000 by the end of February. Prominent 
economic consultant Kamal Hamdan on January 8 told us that 
increasing the cellular penetration rate will enable the MOT to 
lower costs of cellular calls without affecting state revenues and 
the sale price of the two mobile licenses. 
 
NATIONAL PASSENGER CARRIER MEA 
WILL NOT LIST SHARES IN 2009 
-------------------- 
 
¶7. (SBU) Chairman of national airline carrier MEA Mohammad El-Hout 
told us January 8 that MEA has postponed listing shares on the 
Beirut Stock Exchange (BSE) to 2010 due to unfavorable market 
conditions anticipated for this year.  MEA is planning to list 25 
percent of its shares on the BSE as a first step.  (Note: The 
Central Bank of Lebanon controls 99 percent of MEA shares.  End 
note.)  El-Hout estimated MEA's profit to exceed $70 million for 
2008, as the number of passengers rose by 20 percent. 
 
¶8. (SBU) On a separate issue, El-Hout said the recent sale of 
Lebanon's cargo carrier TMA is just a change in the management of 
the company, with the previous owner Banque Libano-Francaise (BLF) 
and the current buyer Mazen Bsat being front-names for BankMed, 
which is owned by the Hariri family.  Bsat acquired TMA for one 
dollar and will settle TMA's $60 million debts, local press 
reported. 
 
AGRICULTURAL PROJECTS FUNDED 
WITH USG WHEAT GRANT ONGOING 
-------------------- 
 
¶9. (SBU) The U.S.-Lebanese Joint Technical Committee concerning the 
agreement between the USG and GOL for the donation of wheat in 2006 
under the Food for Progress Act, approved on January 8 a new tender 
document for the call for proposals for new agricultural development 
projects, following the withdrawal of NGO ACDI/VOCA in December 
¶2008.  The JTC expects to publicize its request for applications for 
new projects by the end of January 2009, to make use of the 
outstanding balance of around $2.2 million (out of an initial $4.75 
million).  Meanwhile, the two other ongoing projects (increasing 
competitiveness of Lebanese agriculture, and the farming of seedless 
grapes and kiwi) are progressing along their set work plan as agreed 
upon with the JTC. 
 
GRANT