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Concerns loom over August salaries for 332,000 public sector personnel, including civilians, military, and retirees, amidst lingering resource shortages, warn officials. This is a recurring and long-standing issue.

Mastering and securing funding for civil servants’ payroll has never been an easy task, given Lebanon’s enduring budget deficit. This year, it gains even greater significance due to the prolonged, multi-faceted crisis of the past four years and the official declaration of Lebanon’s payment suspension status. The stance of the central bank, under the leadership of Deputy Governor Wassim Mansouri, is further complicating the matter as it refuses to provide financial support to the State in the absence of a specific law explicitly authorizing the use of the central bank’s reserves.

Enormous Payroll

It is crucial to highlight that the payroll for public sector employees has increased sevenfold since October 2019. This surge is temporary, as a portion of these payments constitutes a provisional indemnity, excluded from the calculation of those related to end-of-service benefits or retirement pensions.

The public sector payroll in the 2022 budget was three times that of 2019. However, within the context of the 2023 budget, it has quadrupled compared to 2022, and multiplied by seven compared to 2019.

As part of the 2022 Finance Law, approved in September of the same year, the cost of public sector salaries received some relief through a modification of the customs dollar rate, the value of which was raised from LBP 1,500 to LBP 15,000. Nevertheless, this value had remained significantly lower than that of the black-market rate at that time.

Today, what about the funding possibilities for the 2023 budget, especially since it has not yet been voted on and adopted, and government expenditures based on the provisional twelfth are being carried out without explicit legislative authorization?

7 Trillion Lebanese Pounds

The Treasury is grappling with the challenge of securing LBP 7 trillion to cover the public sector payroll by the end of August. This sum represents nearly 11% of the total money supply in circulation, estimated at around LBP 66 trillion. However, introducing such a significant amount could potentially disrupt the exchange market, especially considering the latter’s current atmosphere of anticipation and its cautious restraint regarding the unfolding developments in the coming days.

In this context, the stability of the exchange market would be both relative and temporary. Initially, the elation stemming from the influx of dollars from the diaspora, as they vacation in their homeland, is expected to sustain a favorable influence. Additionally, the ongoing vigorous circulation of foreign currency among various economic actors is currently advantageous; however, it could be swiftly disturbed if the operations of Sayrafa, the Central Bank of Lebanon’s platform, were to halt.

According to sources interviewed by This is Beirut, the possibility of securing financing for public sector salaries in the short term seems attainable. However, the situation could potentially escalate to a new level if the vacancy in the Presidency of the Republic were to persist.

Liquidity Availability

Are the necessary funds for salary payments available in the Treasury’s reserves? Ziad Makary, the caretaker Minister of Information, has revealed that the government assigned the caretaker Finance Minister Youssef el-Khalil with the responsibility of preparing a report on Special Drawing Rights (SDRs) in the coming days. This report will outline the portion of SDRs spent by the Treasury and the remaining available balance. The potential recourse to a part of the remaining SDRs could be considered as a very short-term measure for the government to fulfill its obligations in paying civil servants’ salaries.

Rethinking the government’s financing methods, the State’s dollar revenues might contribute, in the best-case scenario, to up to 35% of the total estimated budget of two billion dollars for 2023. The possibility of increasing currency earnings becomes feasible if the State mandates the payment of customs duties in dollars within a designated timeframe. Nevertheless, adopting this option necessitates an amendment to the laws in place.

Opposing Elected Officials

Concerning the parliamentary decision on a proposed legislation authorizing the Central Bank to provide financial support to the State, the probability of its approval seems limited due to a straightforward consideration. Elected officials, who have vehemently advocated the safeguarding of depositors’ funds since 2019, invoking their sacredness, would encounter a contradiction in endorsing and validating expenditures derived from required reserves held with the BDL.

Social Dimension

The issue of salary payments undoubtedly carries a significant social dimension. The non-disbursement of salaries would be uncertain and could put the country into unparalleled chaos. This situation is exacerbated by the increase in the money supply of over 100% since June 2022, driven by quasi-budgetary activities of the BDL, and the monetization of the budget deficit. These factors have further fueled the overall inflation rate which reached 262% on a year-to-year basis by June 2023.