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REUTERS SUMMIT-Lebanon needs $2.6 billion to counter Syria war impact

Laila Bassam
Wednesday, 30 Oct 2013 | 11:57 AM ET

* Lebanon needs $2.6 billion in budget support over 3 years

* Caretaker finance minister sees 2013 growth of 1.0-1.5 pct

* Sees no growth in 2014 if crisis in Syria, Lebanon persists

* 2013 budget deficit seen reaching $4 bln vs $3.93 bln in 2012

BEIRUT, Oct 30 (Reuters) - Lebanon will need $2.6 billion in budget support over a three-year period to help it overcome the impact of the civil war in neighbouring Syria, caretaker Finance Minister Mohammed Safadi said on Wednesday.

Lebanon hosts at least 800,000 registered refugees from Syria, but Safadi said a total of 1.5 million Syrians were now living in the country, putting a huge additional burden on its health, education and power budgets.

A World Bank study last month put that extra cost at nearly $900 million a year between 2012 and 2014, and said the Syrian crisis was cutting 2.85 percent a year off Lebanon's economic growth.

On top of the refugee influx, Lebanon is struggling with a collapse in tourism revenue and a spillover of violence from Syria, including street fighting in the northern city of Tripoli and a wave of car bombings in recent weeks.

Political paralysis since Prime Minister Najib Mikati resigned in March has prevented the formation of a new government, leaving Mikati's ministers operating only in a limited caretaker capacity.

Safadi said the caretaker government was suffering from a boycott of direct aid by some Western and Gulf countries hostile to the Shi'ite guerrilla and political movement Hezbollah, which helped bring Mikati's cabinet to office in early 2011.

"We used to enjoy 7 or 8 percent growth but unfortunately our growth in 2013 will be around 1.0 to 1.5 percent," Safadi said in an interview at the Reuters Middle East Investment Summit.

His figure was significantly lower than the 2.0-2.5 percent estimate given by Central Bank governor Riad Salameh last month.

"If the political situation persists in Syria and Lebanon, we expect that we will lose even this 1.0-1.5 percent in 2014," Safadi said.

DONOR RELUCTANCE

The World Bank report into the financial impact of Syria's civil war was unveiled at the United Nations last month and is likely to form the basis for discussions about supporting Lebanon at a Nov. 8 meeting in Beirut.

"We have presented our problem to the international community and the World Bank has helped us produce a clear work programme for our requirements," Safadi said. "But our basic problem is the political boycott (of the caretaker government) which has a very big impact on international support."

"We need $2.6 billion over a three-year period," Safadi said, starting with an injection of $450 million to support schools, hospitals and social safety nets.

He said the international response had been mixed. The United States rejects giving direct aid to the Lebanese government - although it funds U.N. and other aid groups in Lebanon - while France had offered to help Lebanon secure loans to cover its extra financial burdens, Safadi said.

"I would borrow to support the Lebanese people, but not to support Syrian people. We were surprised by their stance."

Other countries, including Britain, Canada, Norway and Switzerland had expressed a desire to help, Safadi said.

"We as a government need budget support. The direct aid to the Syrians is being done by the Americans and others, but we need budget support for the part that we are carrying and that no one else would carry".

The Syrian conflict and domestic turbulence drove Lebanon's budget deficit up by two-thirds last year to $3.93 billion, a figure which Safadi said would be surpassed this year despite what he said was spending restraint which he had initially hoped could contain the deficit at $3.5 billion.

"With all the pressures we have now, we have to review this. (Despite) all the tight controls we are exercising, we would definitely reach (a deficit of) $4 billion," he said, describing that figure as "acceptable" in the circumstances.

Last year was the first time since 2006 - when Israel and Hezbollah fought a 34-day war - that Lebanon recorded a primary budget deficit, and it is on course to repeat that this year.

Public debt stands at just over $60 billion, around 138 percent of GDP, and Safadi said Lebanon was likely to issue new Eurobonds to cover the growing deficit, although not before the first quarter of next year.

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(Additional reporting by Dominic Evans and Samia Nakhoul)