Cabinet endorses fiscal plan, will borrow $2 billion

The Council of Ministers on Wednesday approved a "fiscal rescue plan" that includes reform proposals and a plan to borrow $2 billion to reduce the budget deficit.

The plan for economic reform was agreed on by President Elias Hrawi, Prime Minister Rafik Hariri and House Speaker Nabih Berri last week. It gained overwhelming approval during the session Wednesday evening but still has to be approved by Parliament.

The plan outlines ways to reduce the widening budget deficit that include imposing a one percent sales tax on some goods, and limiting waste of public funds by reducing government spending.

It also includes borrowing $2 billion on international markets, aimed at reducing the budget deficit and strengthening the economy.

Hariri emerged from the session to explain to reporters the need to borrow.

"All governments are in debt. It is part of the world economic system. They question is how to handle the debt and reduce the deficit," he said.

Under the proposal, the government would borrow $2 billion on international markets to refund part of its $10 billion debt. Most of the debt currently is in Lebanese pounds and owed to local banks and individuals.

Hariri explained that the interest rate on foreign loans would be much lower than on loans in local currency. He added that local loans had to be repaid within a period of two years whereas long-term foreign debts could be paid back over at least ten years.

The cabinet on Wednesday also endorsed a plan to begin the implementation of development projects in the rural Bekaa Valley in eastern Lebanon.