15 June, 2024
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The 2025 budget and Banque du Liban reserves

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The Lebanese Minister of Finance issued a circular to the public administration outlining principles for preparing the 2025 budget draft. This circular insists that their expenditures must remain within the limits of the 2024 budget. Meanwhile, Banque du Liban’s acting governor announced a significant increase in foreign reserves while continuing to insure public sector salaries in US dollars and maintaining exchange rate stability. This performance highlights the stagnation of financial policies in the crisis box while monetary policies achieve tangible achievements.

 The Minister of Finance’s circular defined the considerations that must be taken when preparing the new budget draft. The Minister also requests all concerned public establishments and administrations to provide the Ministry of Finance with their budget draft before the end of May. He insisted on their role in preparing a realistic budget draft as part of a plan that meets the needs and considers the state’s financing capacity. The Minister pledged to present the new budget on its constitutional date.

The circular strongly emphasizes the need to adopt a policy of financial discipline, underlining its necessity to end the ministers’ expansion of spending. In the same context, it stresses that additional expenditure is only permissible if accompanied by funding from a known source. The circular calls for purposeful investment, which contradicts what was announced in the circular, which states that operational expenses consume 90% of the budget.

The circular’s conclusion is clear: the new budget draft must not impose any additional burdens beyond the 2024 budget and must be within the state’s financial capacity. The goal of the 2025 budget draft is to adhere to the state’s economic capabilities and ensure financial and monetary stability. However, the circular ironically urged the concerned departments to search for funding sources outside the budget when preparing their draft. This request to search for donations to finance their expenses is a clear call for begging.

It should be noted that the expenses included in the 2024 budget were defined within the ceiling of expected revenues. Knowing that taxes and fees increased between 10 and 60 times. Hence, the reproduction of budgetary appropriations of the 2024 budget in the 2025 budget draft reveals the Ministry of Finance’s need for economic and financial vision. A new budget concept is required to crystallize the state vision contributing to the country’s recovery.

There is no real reason to continue reducing expenses under the pretext of insufficient revenues. Many revenue-generating public facilities remain almost completely closed. Restoring these facilities to operate will double the revenues for the treasury. Note that the closing of these facilities began with COVID-19 and the economic and financial crisis. Even financial stamps are only available to monopolists, which increases the obstacles facing citizens and doubles the cost of completing their transactions.

What is needed today is whether the 2025 budget draft should constitute a new approach considering the budget’s pivotal role in the country’s economic recovery. Lebanon’s economic and financial crisis requires rationalizing spending and allocating revenues appropriately to create financial reserves that allow the state to pay its obligations. The state’s refusal to include its financial obligations in the 2024 budget does not mean it is exempt from them.

As much as public administrations and institutions must commit to the necessary expenditures, their work must be activated to the same extent and perhaps more. Addressing economic and financial crises is impossible by stifling spending. Instead, it requires refraining from useless spending and allocating revenues to areas that encourage new investments and stimulate the national economy.

Pending citizens’ transactions continue to need to be achieved despite the Israeli attacks on southern Lebanon, which negatively affected the economy and state revenues. Many of these transactions are stuck in the real estate department or other public administrations, especially in the civil registry department.

The Ministry of Finance must, instead of urging concerned parties to research external donations, work to activate public departments and administrations. This action helps to achieve citizens’ transactions and collect states’ rights from fees and taxes.

The other side of spending through borrowing is insisting on reducing expenditures and staying within budget revenues. The first method obstructs state administrations’ work, and the second accumulates loans and their interest without the ability to repay them.

The spending reduction came at the expense of public sector employees, both military and civilian, whose incomes fell to less than 10% of what they earned before the crisis. Note that the circular stresses that the salaries included in the salaries item should be at most seven times the basic salary.

On the other hand, Banque du Liban maintained exchange rate stability, achieving $1.7 billion in addition to its reserves, bringing it to $9.6 billion. Moreover, the bank reduced the size of the monetary supply in the Lebanese pound to its lowest level since last August 2023, at approximately 53.4 trillion, less than $ 600 million. Achievements were realized despite the republic’s presidency’s continued vacuum and the caretaker government’s failure to develop a plan to address the economic crisis and its repercussions.

The increases in the Bank of Lebanon’s reserves are considered modest compared to its losses, as they are equivalent to $73 billion, according to the Alvarez & Marcel report in June 2023. However, the realistic approaches adopted by the Bank of Lebanon enabled it to maintain the stability of the exchange rate and increase its reserves simultaneously. Similar directions are required from the Ministry of Finance to activate revenue collection, rationalize expenditures, and not be satisfied with austerity budgets that deepen the crisis and do not solve it.

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