ERASE, Currency Crisis, Inflation and Currency Devaluation, Economic Update

2022 Budget: Official Devaluation of the Lebanese Pound

11:43 | 30 October 2022LIMS output
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2022 Budget: Official Devaluation of the Lebanese Pound

During October, the approved 2022 budget law was not published in the official gazette, making it applicable for only the last quarter of the year. Such repercussions of the 2022 budget are still being discussed in Lebanon, especially the increase in public sector employees’ salaries by three-fold, and the official devaluation of the exchange rate from 1,500 Lebanese pounds (LBP) to the dollar to 15,000 LBP to the dollar.

LIMS clarified that the increase in the exchange rate used for the calculation of customs fees does not cover the raise given to public sector employees. In fact, the projected fiscal deficit roughly equals the salary increase making the latter unfunded. In turn, the salary increase will be financed by increasing the money supply, which will only lead to further devaluation of the local currency. LIMS warned that it will not take long before the increased salaries lose their value. This devaluation would hurt even more people working in the private sector.

Salaries should be related to labor productivity, and public sector employees currently have poor job performance, not even showing up to work most of the time, LIMS explained. Therefore, any raise should be achieved through a public sector restructuring that would effectively decrease the number of employees. Already, this number is inflated at 300 thousand public sector employees, for the 4 million citizens.  

On the other hand, increasing taxes and tariffs will only lead to a higher burden on businesses and people, creating further tax evasion or complete shutdown. A better approach would be to apply a flat tax rate, while simultaneously decreasing it. This would disincentivize evasion and attract investments, prompting growth that would in return increase the overall revenue.

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  • New Exchange Rate Is 15,000 Lebanese Pounds If Applied…What Costs And Catastrophic Effects Will This Have On People?! October 3, 2022: El Nashra, Article AR 
  • Special Report: President Aoun’s Most Important Achievements Amid Deteriorating Conditions And Decline In Standard Of Living For Lebanese Day-By-Day, October 26, 2022: VDL, Article AR 
  • In Addition To Abolition Of Customs And Real Estate Fees…Fakrajian: Reducing Taxes Increases Chances Of Collecting Them! October 3, 2022: Nidaa Alwatan, Article AR 
  • 2022 Budget Punishes Producers, Drives Away Investors, Fuels Inflation, And Is Heading Towards The Continued Collapse Of The Lebanese Pound Price, October 4, 2022: MTV Lebanon, Article AR 
  • Customs Dollar And Salary Increase Will Eliminate Rest Of The Sectors. Private Companies Threatened With Bankruptcy And No Reforms Yet, October 4, 2022: Addiyar, Article AR 
  • Is Lebanon Really At The End Of The Crisis? October 5, 2022: Lebeconomy, Article AR 
  • Raising Public Sector Salaries Increases Exchange Rate Craze, October 7, 2022: Annahar, Article AR