Salameh has Gloomy Predictions on Lebanon's Economy over Salary Boost
Central Bank Governor Riyad Salameh has warned the government that inflation could reach 6 percent this year and expected a balance of payments deficit of 2 billion dollars by the end of September, An Nahar newspaper reported on Monday.
His warnings came after he was summoned to brief a cabinet session last Wednesday on the economic repercussions of proposed taxes to finance a new salary scale for the public sector.
Finance Minister Mohammed al-Safadi previously proposed raising taxes on illegal seaside properties, customer deposits, luxury items, alcohol, fiscal stamps and fees on construction permits to finance the pay hikes.
The wage boost will cost the state treasury around $1.2 billion as there are over 180,000 public sector employees including military personnel.
The SCC, a coalition of private and public school teachers and public sector employees, staged a nationwide strike last Thursday to protest the cabinet's failure to refer the controversial new salary scale to the parliament for approval.
According to the government's bill, the raise will be retroactive from July 1, 2012. But the cabinet is facing the controversy of imposing the right taxes to finance the boost after Salameh gave gloomy predictions on the country's struggling economy and monetary system.
According to An Nahar, the Central Bank governor warned that the balance of payments deficit could reach 2.6 billion dollars by the end of 2013 and feared a minimum one percent interest hike on the increase in credit.
Any one percent increase in debt service would mean a burden of 560 million dollars, a policy rejected by the International Monetary Fund and rating agencies, he said.
He also warned there will be negative growth next year and that the public debt and job opportunities were in danger, the newspaper said.
Salameh has proposed raising the wages in increments over three to five years to only ease the negative effects of the proposed taxes but not as a solution that would salvage the economy.
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