Government Revenues; and Public and USD Deposits at BDL

1 Exchange rate = 15,000 LBP; 2 Exchange rate = 89,500 LBP

3 Exchange rate was changed from 15,000 to 89,500 on 1 February, 2024

Source: BDL

In a document published in early 2024, “Public Finance in the Face of Expected Risk of the Current Circumstances”, MOF expected government revenues to increase to 24 Tn LBP a month, including 20 Mn in USD. That would add to 288 Tn LBP a year. It is no surprise then that the 2024 Budget expected government revenues to reach a close 301.43 Tn LBP.

The interesting thing, though, is that public deposits at BDL increased from 149.08 Tn LBP in Sept 2023 (the last date for which data on USD deposits are available) to 534.79 Tn in Sept 2024 (the last date for which any data are available). That is an increase of 385.71 Tn LBP. If we account for the fact that, out of public deposits at BDL, 351 Mn were in USD in Sept 2023 and another 80 Mn USD were accumulated (20 Mn USD a month for 4 months) till Feb 2024 when the exchange rate was changed from 15,000 to 89,500, then the adjustment due to the exchange rate change will be only 32.12 Tn LBP. This means that the ‘net increase’ in public deposits was 353.59 Tn LBP (385.71 – 32.12 Tn LBP). But given that the government must have surely undertook sizable expenditures during the period (for instance, it pays 100 Mn USD a month in public wages), then government revenues must have surely exceeded 353.59 Tn LBP in 2024, let alone the 301.43 Tn LBP predicted in the 2024 budget. Even the 410.13 Tn LBP in government revenues expected in the 2025 budget is most likely an underestimate!.

What about public deposits in USD at BDL? It is expected that during the Sept 2023 to Sept 2024 period, these would have reached 591 Mn USD (351 + 12×20 = 591). But since total government revenues were notably larger than what was predicted in Budget 2024, then the USD public deposits at BDL would have been larger as well. Note that BDL’s foreign assets stood at 13.96 Bn USD in Sept 2023 and increased to 15.85 Bn USD in Sept 2024 (an increase by close to 2 Bn USD). As such, USD public deposits constituted 2.5% of BDL’s foreign assets in Sept 2023 but increased to 3.7% in Sept 2024, though the latter is surely an underestimate given, as we discussed above, that the 591 Mn USD is also undervalued.

It is ironic that during normal and peace times the Lebanese government ran consistently budget deficits whereas during crisis and quasi-war years it ran surpluses (as the 2023-2024 years must have been)!. With limited public expenditures, except for public wages, this shows the fertility of indirect taxes (custom tariffs, VAT, airport exit fees,..) for an open and high-consumption economy like Lebanon. But the flip side of this advantage is that it might hinder or render unnecessary reforms to public finances, especially those related to direct taxation and collection and to public enterprises.

Lastly, and needless to say, if the war raging in Lebanon right now drags longer, wider, and deeper then both government revenues and public deposits at BDL will fall and, more ominously, so will foreign assets at BDL.

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