Lebanon must slash interest rates - outgoing economy min Bteish

BEIRUT, Jan 16 (Reuters) - Lebanon must bring down interest rates drastically as a first step towards rescuing its economy, outgoing economy minister Mansour Bteish said on Thursday, expressing concern that the economy may have shrunk by some 7% last year.

Heavily indebted Lebanon is stuck in an economic crisis which came to a head last year when protesters took to the streets calling for the ruling politicians to be booted out over state corruption and bad governance - root causes of the problem.

“We are in a very dangerous phase. We could be at the start of a great national crisis that could lead to collapse,” Bteish said in an interview, attributing the crisis to problems in the way the economy had been run from the early 1990s.

Lebanon’s gross domestic product, which stood at $55 billion in 2018, was hit hard in the final quarter of last year when the protests prompted Prime Minister Saad al-Hariri to resign.

Bteish estimated that 2019’s GDP came to $51 billion “more or less”. “This is an estimate, hopefully it will be $52 billion,” he said. Unemployment now “certainly exceeds 35% or 40%,” he said.

Bteish belongs to the Free Patriotic Movement (FPM), the political party founded by President Michel Aoun that is expected to wield major influence in a new government which will be led by Prime Minister-designate Hassan Diab.

Caretaker finance minister Ali Hassan Khalil said on Thursday the government was on the brink of being formed.

Urgent issues facing the new government include how to manage the state’s massive public debt, one of the largest compared with the size of the economy.

“Interest rates must be brought down drastically, this allows for bringing down the rates on public debt.”

“This is part of a basket of measures. This step must be taken as soon as possible. We asked the governor of the central bank and the banking association to go in this direction,” he said. The change should be agreed voluntarily by banks, he added.

“What concerns me is boosting production in Lebanon ... What concerns me is greatly reducing (interest rates), because this reduction does not harm ... the deposits,” he said. (Reporting by Laila Bassam and Tom Perry; Editing by Hugh Lawson)