Lebanon’s fiscal deficit widened from $161.58M by February 2017 to $865.03M in the first two months of 2018 mainly due to three factors: the passing of the public sector pay hikes in Q4 2017, the non-transfer of Telecom revenues, and the substantial transfers to municipalities prior to the May 2018 elections.
Lebanon’s overall primary balance posted a deficit of $329.56M, compared to a surplus of $330.91M by February 2017.
In details, the breakdown of fiscal revenues for the first two months of the year revealed that government revenues fell by an annual 4.32% to $1.66B by February 2018. In fact, Tax revenues, which constitutes 84.8% of the income to the government, declined by an annual 11.14% to $1.41B. In details, “revenues from the VAT” (34.9% of total tax receipts) climbed by 8.9% y-o-y to $491M, and this can be largely attributed to the new VAT rate of 11%, increased from 10% starting January 2018. Meanwhile, “customs’ revenues” (14.89% of tax receipts) dropped by 1.29% year-on-year (y-o-y) to $209.25M over the same period which can be explained by the slower activity on Lebanon’s ports since the Syrian crisis which has still not fully recovered. As for Non-tax revenues (15.2% of total government income), they were almost halved as they stood at $252M by Feb. 2018 compared to $468M by Feb. 2017. In particular, “telecom revenues” (constituting 28.68% of total non-tax revenues) witnessed a decline from $265M in the first two months of 2017 to $72M by Feb. 2018 due to the non-transfer of revenues over the period.
On the expenditures’ side, total government spending hit $2.38B during the first 2 months of the year, up by 28.48% y-o-y. It is most worthy to note that transfers to Electricite du Liban (EDL) alone (9% of total government expenditures) rose by an annual 3.44% in the first two months of the year, to stand at $212M, which followed the 21.11% annual rise in average oil prices to $67.48/barrel over the period. Moreover, total debt servicing (including the interest payments and principal repayment) reached $535.47M by Feb. 2018, up by a yearly 8.73% such that interest payments alone rose by 9.09% y-o-y to $511.4M. In fact, interest payments on domestic debt rose by an annual 12.53% to $397.81M, given that total local currency debt rose by 6.56% y-o-y to $50.9B by Feb. 2018. Meanwhile, interest payments on foreign debt retreated by a marginal 1.45% y-o-y to $113.6M. In their turn, treasury expenses of which municipalities climbed from $6M to $342M over the same period.
Yearly Government Deficit by February (in $M)
Source: Ministry of finance