EXCLUSIVE-Lebanese draft budget reduces deficit to below 9 pct of GDP-finance minister

Lebanon's draft budget for 2019 projects a deficit of less than 9 percent of GDP compared to 11.2 percent in 2018 and includes "wide reductions" in spending based on the need for "exceptional austerity measures", the finance minister said on Wednesday. The budget, seen as a critical test of the heavily indebted state's determination to reform, is based on an economic growth forecast of 1.5 percent in 2019, which could rise to around 2 percent as the economy picks up, Ali Hassan Khalil told Reuters.

Lebanon has one of the heaviest public debt burdens in the world at some 150 percent of GDP. State finances are strained by a bloated public sector, high debt servicing costs and hefty subsidies spent on the power sector. The draft budget projects a primary surplus compared to a deficit in 2018, Khalil said.

"The most important thing is that we have put ourselves on the path of dealing with the accumulated deficit," Khalil said. The draft represented an "introduction to more deficit reductions in the 2020 and 2021 budgets," he said. The draft includes measures to tackle tax evasion and to boost customs revenues in addition to "tax amendments" for high earners, he said. There would be no tax increases for the poor and those with middle incomes, he said.

The government also believed the level of interest rates would tend to decline in the coming months, he said. Khalil said he believed it was the first time Lebanon would have a budget that was "transparent and realistic" and which included "real spending in all its respects" and did "not hide numbers". (Reporting by Laila Bassam and Tom Perry; Editing by Toby Chopra)