Lebanon’s Proposed Fiscal Budget for 2022: A Budget in Transition

On Friday 21/1/2022, the Lebanese Ministry of Finance published its proposed budget for the year 2022. It is a very long budget made up of close to 1300 pages and containing 139 explanatory articles. Though by legal and procedural standards the budget is late in arriving, it came three days before the start of negotiations with the IMF, which gives the impression that it is a move designed to signal “good intentions” on the part of the government prior to its dealings with the Fund. The budget will have to be approved by the Council of Ministers and the Parliament before it becomes a binding law, a process that could take a few weeks and, more importantly, could involve quite a few changes to its final draft.

In terms of numbers, the proposed budget carries expenditures of around 49.5 trillion LBP compared to 18.8 trillion LBP in 2021. But given that inflation averaged close to 155% in 2021, in real terms the proposed budget implies higher expenditures by about 1.5 trillion LBP only. As to nominal revenues, they are expected to be around 39.2 trillion driven by higher indirect taxes and fees. The deficit is expected to be around 10.3 trillion LBP, or 20.8% of expenditures; but if one adds the transfers to EDL (historically the black whole of public finances) at 5.25 trillion LBP, then the ratio becomes 31.5%. Incidentally, this ratio compares to actual 34.5% in 2019 and 21% in 2020 (the figures for 2021 are not complete yet).

The budget was criticized as lacking in public investments and social expenditures; short on reforms and not tied to an overall recovery plan; not explicit about the exchange rate that will be utilized to price public services and fees (though anecdotal evidence puts it at 15,000-20,000 LBP per USD); devoid of any compensatory adjustments in public wages (except for one-off limited and partial support) which in fact was approved by the council of ministers today to all civil and military personnel, and, perhaps most notable, the granting of exclusive powers to the Minister of Finance to set exchange rate, adjustments to taxes and fees, and the level of one-off support to public employees.

Though these are legitimate criticisms, one should not perhaps lose sight of the fact – and not necessarily in the spirit of defending the budget — that this budget is only a transitory budget designed to bring order to public expenditures and to regularize government work till a comprehensive program is agreed with the IMF and till elections are held early in the summer. In addition, given the depth of the Lebanese financial and economic crisis, it is perhaps not unreasonable for the sake of speed and efficiency to grant the government some exclusive powers to implement any desired or targeted reform and recovery program. We will have more to say about the budget once it is approved by the Parliament.