National budgets play a central role in public financial management by translating a country’s national goals into annual spending and revenue generating plans. Allocating resources in a coherent manner is a fundamental prerequisite for building an economy, whereby public expenditures are one of the main governance tools that states use to shape markets and deliver public services.² Whether it is financing public works or social protection programs, public spending sits at the core of fiscal policy, which ultimately defines the social contract between the state, the political elites who control it, and citizens.

In Lebanon, the national budget has long been formulated with little to no concern for such principles. The ruling political class failed to enact budget proposals into laws for 12 consecutive years, and when they managed to pass a budget law, it was completed well after the constitutional deadline. In terms of content, Lebanon’s budget laws read like accounting documents and are void of macroeconomic targets and policy objectives. Lebanon’s 2023 draft budget—approved by the Council of Ministers and slated for submission to the parliament—is in keeping with this trend.

A review of the 2023 budget draft’s expenditure side exposes its alarming lack of size, direction, and connection to a medium-term recovery framework. Not only is the budget already eight months past its constitutional deadline and void of macroeconomic assumptions upon which figures are supposed to be calculated, but it has become little more than a payroll for the public sector. But even this payroll is flawed, as its real value is a fraction of pre-crisis levels and discriminates between types of civil servants. The following are six major concerns with the current 2023 budget draft.

Lebanon’s 2023 budget preparation misses the point
National budgets should be prepared ahead of a fiscal year, not during it. Moreover, they should be accompanied by complementary documents—such as the “Fazlake”—to provide the rationale behind revenue and expenditure projections. Lebanon’s budget preparation process for 2023 fails on both ends. The Ministry of Finance prepared the preliminary budget draft for 2023 with other ministries and sent it to the cabinet without a Fazlake on July 17, 2023, almost 11 months past the deadline.³ That way, the continued political disregard of fiscal affairs, coupled with capacity shortages in public administration, have already undermined the credibility of the 2023 budget, as only three months remain in the fiscal year.

The 2023 budget draft is small and shrinking faster than the economy

Lebanon’s projected public spending in 2023 totals LBP 199.3 trillion, or $2.36 billion using the average market exchange rate between January 2023 and June 2023. From 2000 to 2020, Lebanon’s budget spending as a share of GDP was in-line with countries of similar levels of economic development (Figure 1).⁴ In 2023, this ratio is expected to reach 15% of GDP, which is more than a twofold increase compared to 2022 (6%), but still well below pre-crisis levels (31%). This implies that public spending has shrunk at an even higher rate than that of the economy. In fact, while GDP contracted by 69% from 2019 to 2023,⁵ public spending decreased by 83% in real terms.

The 2023 budget draft slashes service ministries more than others

The state is rationing its fiscal resources in the 2023 draft budget in a manner that reflects the ministries it considers vital, with some sovereign ministries receiving a substantially larger portion of budgeted funds compared to service ones. Of the amount allocated to ministries, almost 70% is distributed across only five sovereign ministries (Finance, Interior and Municipalities, Defense, Foreign Affairs, and Justice), compared to 44% in 2019 (Figure 2).⁶ Unlike historical trends, the Ministry of Finance (MoF) received a substantial 39% of the budget assigned to line ministries and ranked first in terms of overall budget size, compared to 2019 when it was 6% and ranked seventh.⁷ This increase came at the expense of budgets for service (Education and Higher Education, Health, and Social Affairs) and infrastructure ministries. More specifically, the Ministry of Education and Higher Education (MEHE) was allocated 21% of the pre-crisis budget and dropped to 7% of the budget for ministries in 2023. The Ministries of Public Health (MoPH) and Social Affairs (MoSA) budgets, which previously received an average of 7% and 3% respectively, decreased to 6% and 1% in 2023. In real terms, the budget sizes for MoSA contracted by 94%, MEHE by 91%, and MoPH by 80%. Strikingly, the real value of all ministry budgets sharply contracted from 2019 to 2023, except for two: the Ministry of Finance (increased by 60%) and Ministry of Economy and Trade (increased by 10%).

While the 2023 budget draft appears to be expansionary compared to 2022, the real value of the budget has severely contracted. This reduction is most pronounced in public expenditures for service and infrastructure ministries, implying a continued weakening of public service delivery.⁸

Most expenditures in the 2023 draft budget are allocated to personnel costs, yet it is not enough

Based on the 2023 budget draft, personnel costs total LBP 119 trillion (about 60% of total expenditures). Factoring in Laws 311 and 312, which opened exceptional credit lines worth LBP 37.7 trillion to finance personnel-related costs, the expenditures allocated for wages, salaries, and other social benefits to the public sector are projected to comprise 66% of total expenditures. This marks the largest share of personnel costs relative to the budget since the post-war era (Figure 3). However, personnel costs in 2023, including the credit lines, constitute one-third of their 2019 value in US dollar terms. (Figure 4).

The recovery of wages and salaries is asymmetrical across types of civil servants

Overall, the budget line allocated for temporary public sector employees rebounded, increasing by 38% compared to 2019, while that of full-time employees represents less than 10% of their pre-crisis value (Table 1). Relative to the size of the total budget in each year, allocations for temporary worker salaries increased from 1% in 2019 to 14% in 2023.

Moreover, the Ministry of Foreign Affairs now has the largest discrepancy in wages across departments because some workers are paid in foreign currency (diplomatic corps) while others are paid in Lebanese pounds (central administration). In fact, the salary budget line for workers in the diplomatic corps is projected to be more than 400 times larger than that of civil servants in the ministry’s central administration.

The real value of personnel costs at core-service ministries like the MEHE, MoPH, and MoSA sharply decreased in the 2023 draft budget. Compared to 2019, MEHE’s decreased from $1 billion to $86 million, MoPH’s from $21 million to $1.75 million, and MoSA’s from $3.9 million to $0.4 million. Collectively, the budget lines allocated to personnel costs for these ministries decreased by an average of 97% compared to 2019, well above the 75% overall decrease in personnel cost across institutions.

ِAd hoc spending is growing, and so is the budget reserve

According to Article 26 of the Public Accounting Law, the budget reserve should replenish exhausted budget lines that are common between ministries and finance emergency-related expenditure items. This form of public spending requires a decree signed by the prime minister and the minister of finance, which is inherently political in nature.

When spending is properly budgeted, the budget reserve should be minimal. Contrasting this best practice, the 2023 budget reserve is allocated the second-highest amount ($338 million) across institutions compared to the eighth-highest in 2019 ($350 million) (Figure 5). While reserve funds earmarked for emergency spending are an important resource because Lebanon’s macroeconomic landscape remains volatile, the significant increase in its budget share reflects some weakness in budget planning either from underreporting expenditure items or overestimating revenue projections, particularly as more than half the year has already passed.

Lebanon’s 2023 draft budget does more harm than good

Four years into the crisis, Lebanon’s political elites have not only refused to adopt substantive reforms but have also wasted the state’s dwindling resources. They approached the 2023 budget in an ad-hoc manner absent a medium-term fiscal framework and slashed social services funding without concern for its impact on citizens. Instead of expediting reforms and activating accountability and budgetary institutions, elites seem content to hollow out the state, and by extension, the economy and society.