What lies ahead for the public sector overall, and the 2025 budget proposal in particular, amid the prospect of a prolonged war?
In the absence of a miraculous diplomatic breakthrough, there are fears that the war between Israel and Hezbollah will continue into next year, according to several reliable sources.
In this scenario, economic forecasts project a GDP of $12 billion for 2025—well below that of Gaza and the West Bank. With such a figure, achieving the projected $4.6 billion in revenue for the 2025 budget, initially based on a GDP estimate of $27 billion, seems out of the question. Should hostilities end in December 2024, GDP would still fall around $17 billion.
Public Finances
Treasury revenues, which had shown positive growth over the first eight months of 2024, came to a halt in September, with a confirmed decline in October. Between January and August 2024, the Treasury recorded a surplus of over $650 million in foreign currency, driven by revenues of $2.7 billion and expenditures close to $1 billion.
This surplus, deemed satisfactory, led the government to approve gradual increases for both active employees and retirees. These increases include social allowances amounting to four times the 2019 base salary, in addition to a lump sum of LBP 20 million, to be disbursed in two payments by the end of 2024. The cost of these increases is estimated at around $40 million per month, raising the public sector payroll from $120 million to nearly $160 million monthly.
BDL and the Displaced People
This surplus, which the Lebanese Central Bank (BDL) planned to use to bolster its foreign currency reserves, was partially allocated by the state to support displaced individuals and finance medical care for the injured.
Nonetheless, the Ministry of Finance announced on Monday in a statement that it has completed all procedures related to the payment of salaries, pensions and recently approved increases for public sector employees, both civilian and military, including retirees and all military personnel. This matter has been forwarded to BDL, which will transfer the funds to the beneficiaries through private banks.
If this operation remains viable for the Treasury by the end of October, the situation is likely to become more complicated in the months ahead, raising concerns about the state's financial stability. Meanwhile, the private sector must generate profits to meet tax obligations. However, productive sectors are facing severe challenges: tourism is at a standstill, the trade sector has plummeted by 80%, and industrial exports may drop to $1 billion, marking a 70% decline. Moreover, consumption of petroleum derivatives has reportedly fallen by 35% since the onset of hostilities, reflecting a significant decrease in economic activity and highlighting the illegal transport of fuel to Syria.
The Lebanese Pound
Moreover, sources close to the BDL continue to emphasize that the exchange rate of the pound against the dollar remains stable, highlighting that the institution is effectively managing the money supply of pounds in circulation, estimated at around LBP 53 trillion. However, while its foreign currency reserves have experienced a slow but steady increase since August 2023, they began to decline in recent months. In this context, it should be noted that BDL has tapped into its strong foreign reserves to make a lump-sum payment covering three months' worth of dollar payments to depositors benefitting from Circulars 158 and 166.
In Lebanon, one should expect surprises that may not always be pleasant.
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