- 15
- Nov.
- 2024
With spending on the rise and revenues falling short of expectations, the 2025 budget proposal is now effectively obsolete. The government must act swiftly to withdraw it from Parliament, where it was submitted on time, to prevent a deepening crisis.
Why is a crisis inevitable?
The current draft budget relies on unrealistic revenue projections, which will almost certainly force the government to resort to Treasury advances. Nicolas Chammas, Secretary-General of the Economic Bodies, warns that this would create a “parallel budget.” Such a move would trigger yet another crisis, especially given that the state’s coffers are empty.
Even the least damaging financial solutions would have severe repercussions on Lebanon. The available funding sources are both uncertain and scarce. The state could be forced to print more Lebanese pounds, incur additional debt, or tap into the Central Bank (BDL)’s already depleted reserves. Each of these measures would jeopardize the stability of the national currency’s exchange rate.
Given the severe disruptions to economic fundamentals caused by the persisting conflict, a comprehensive structural revision of the budget proposal is urgently needed. The draft is currently under review by the Finance and Budget Committee, which has been unable to convene due to security concerns.
Time is running out, intensifying pressure on the public treasury and the Lebanese population. If Parliament does not approve the budget by January 31, it will be enacted by decree in its original form by the caretaker government.
Unrealistic revenue projections
The proposed 2025 budget, totaling $3.2 billion, foresees a nearly 40% rise in expenditures compared to 2024, along with a 30% increase in revenue. Of this anticipated revenue, 80% is expected to come from taxes, with the remaining 20% from non-tax sources. Key tax categories include income tax, capital gains tax and levies on international trade.
However, these projections appear highly unrealistic, if not entirely implausible, especially in light of the fact that half of Lebanon’s eight “mohafazats” or governorates are now sidelined from economic activity. This disruption is a direct result of Hezbollah's initiation of hostilities on the southern front with Israel, which has plunged the country into conflict.
Additionally, the pervasive informal economy, which operates largely in cash, complicates the collection and enforcement of taxes. According to caretaker Finance Minister Youssef Khalil, had the war not erupted, the Treasury could have generated a surplus of nearly $1 billion in the first nine months of 2024.
In October 2024, the Treasury's actual revenues accounted for just 30% of the initially projected figures. During this month, cash revenues reached $3.3 billion, while cash expenditures stood at $2.7 billion, resulting in a surplus of $600 million. These expenditures were primarily directed towards critical areas, such as public sector salaries, the Ministry of Health, the Southern Council and the High Relief Committee.
The international community and Lebanon
That being said, the Ministry of Finance and BDL are relying on international financial support to cover humanitarian aid. The goal is to preserve the funds in Treasury Account 36 as much as possible, while BDL aims to safeguard its reserves to defend the Lebanese pound's value against the dollar.
However, a legitimate question arises: is the international community willing to provide funding beyond humanitarian aid? According to some sources, frustration with the “Lebanese case” is becoming increasingly evident. In this regard, Saade Chami, the Deputy Prime Minister, shared with economic representatives that he has sensed a growing “fatigue with Lebanon.”
During his visit to Washington, where he met with officials from the International Monetary Fund (IMF) and the World Bank, Chami requested urgent financial aid for Lebanon.
However, international support may be hindered by growing fatigue over the country’s ongoing crises. For now, Lebanon will have to rely on a credit line previously granted by the World Bank, with $250 million still available.
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