September 18, 2019 / 2:50 PM / 3 months ago

UPDATE 1-Lebanese economic growth zero if not negative -finance minister

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BEIRUT, Sept 18 (Reuters) - Lebanon’s economic growth is zero if not negative, leading to pressure on the central bank’s foreign currency reserves, Finance Minister Ali Hassan Khalil said on Wednesday.

Khalil also said Lebanon will “very soon” start measures to issue about $2 billion of foreign currency bonds.

In response to questions about difficulties some Lebanese have faced in obtaining dollars, Khalil said that “there was not much liquidity in people’s hands” but that this had “no impact” and that banks were maintaining the pegged exchange rate.

Khalil was giving details at a news conference of the 2020 draft state budget, which is aimed at reducing the deficit. The new budget would include no new taxes or fees, he said.

“The level of growth went back to zero, if not negative, and therefore this matter led to an increase in the pressure on (the central bank) reserve in foreign currencies, (and) the accumulation of the deficit in the treasury,” Khalil said.

The cost of debt servicing had also moved higher with increased interest rates, he said.

One of the world’s most heavily indebted states, Lebanon is aiming to drive through long-postponed reforms to put the public finances on a sustainable path.

The impetus has grown due to a stagnant economy and a slowdown in inflows of hard currency from Lebanese abroad, which has long been a key source of financing for the state and its current account deficit.

The Lebanese pound has been pegged at its current level against the U.S. dollar for more than two decades and the government has vowed it will be kept there.

Some Lebanese importers say they have found it harder or more expensive to acquire dollars in recent weeks.

“The economic situation is tough but we are not a collapsing country at the financial level ... and we still have the ability to meet needs,” Khalil said. “Yes, there is not much liquidity in foreign currencies in people’s hands in the market, but the dollar exchange rate is still maintained in the banks.

“What we are feeling is that small cash in people’s hands is not available, outside the framework of (bank) transactions ... but we want to say that this has no impact,” he added. (Reporting by Ellen Francis/Tom Perry/Laila Bassam; Editing by Catherine Evans)

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