Following months of government paralysis amid an economic meltdown, Lebanon’s cabinet of ministers finally convened again to pass the 2022 general budget. The draft budget applies exchange rates between 15,000 to 20,000 Lebanese pounds (LBP) per dollar for operating costs. This moves away from the previously used official rate of 1,500 LBP to the dollar to a more realistic rate. Projected revenues sit at 39.15 trillion LBP compared to 49.42 trillion LBP in spending, yielding a 10.27 trillion LBP deficit.

LIMS explained that the government was unable to produce a balanced budget, despite outrageous increases in tariffs and taxes, defaulting on the payment of the Eurobond debt, and not accounting for the expected losses from the national electricity company. The deficit will be financed through inflation and currency devaluation since the government is unable to access debt financing. 

LIMS described the draft budget as wishful thinking, for it understates expenses and overstates revenues. The government seeks to increase total revenue by almost 3-fold, from 13.6 trillion LBP in 2019 to 39.15 trillion in 2022, betting on additional tariffs and tax hikes. However, in a country already going through a gruesome economic crisis, increasing import tariffs will hurt consumers and businesses. Consumers will end up paying higher prices, while many businesses will end up relocating overseas, shutting down completely, or resort to evading customs. This would result in a much larger than anticipated deficit.

With an exhausted population unable to withstand any additional tax burdens, LIMS proposed lowering taxes to support struggling local businesses, and repealing customs entirely, so that Lebanon could compete with other more attractive destinations for doing business. The government should pursue fiscal discipline through lowering the needless expenses, rather than raising taxes during a recession. Balancing the budget is now more crucial than ever because any deficit would be funded through inflation that disproportionately impacts the poor.

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• Funding The Ten Trillion Pound Budget Deficit, January 28, 2022: Lebanese Forces, Article AR
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• Tariffs’ Exchange Rate, Pros And Cons, January 31, 2022: Lebanon 24, Article AR