Just one week after sending the 2023 budget draft to parliament, caretaker Prime Minister Najib Mikati’s cabinet approved the 2024 draft and forwarded it for legislative review and ratification. Despite its timely preparation, the 2024 budget draft—similar to its 2023 counterpart¹— lacks needed reforms, fails to boost investment in public services—contrary to what is outlined in its preamble—and does not contain provisions aimed at rejuvenating Lebanon’s broken social contract. A review of expenditure and revenue figures lays bare the 2024 draft budget’s misaligned allocation of finances and an increasingly regressive tax composition, highlighting a deteriorating public financial management in Lebanon's national budgets, acutely in the post-2019 era. Below are the main takeaways.²

The state relies on VAT to generate desperate revenues, viewing them as a low hanging fruit

The 2024 budget draft projects that tax revenues will total LBP 212.6 trillion, equivalent to $2.39 billion in real terms, making up 75% of total revenue. Consistent with prior budgets, the majority of tax revenues (62%) will be generated through indirect taxation. Revenue from domestic taxes on goods and services is projected to reach LBP 118.4 trillion ($1.33 billion), a nearly twofold increase compared to estimates in the 2023 draft ($0.69 billion).³ Relying on indiscriminate tax instruments to generate revenues disproportionately impacts less affluent residents. In this vein, the 2024 budget draft inherits an element of the 2023 draft, which decreases the VAT threshold to cover businesses with an annual turnover of as low as $24,000. This presents a risk to small and medium-sized businesses, which previously were subject to a VAT threshold of $67,000. Moreover, concerns about the state's ability to ensure compliance due to its weakened tax administration and the proliferation of a cash-based economy call into question the efficacy of these policy changes. Direct taxation is expected to generate $780 million (33% of tax revenues), with the 2024 budget draft retaining the same ill-designed income-tax bracket outlined in the 2023 version, which would under-tax high earners and over-tax vulnerable ones.

The state ignores the urgency of revitalizing social services

Since late 2019, Lebanon’s service ministries and social insurance funds have suffered from severe losses in financial capacity.⁴ Between 2019 and 2023, service ministries’ budgets were reduced in real terms by 88% and social insurance funds by 69%, all at a time when vulnerabilities skyrocketed.⁵ While the 2024 budget proposes significant year-on-year increases to both budgets (+64% for service ministries and +169% for public and private social insurance funds), they fall short of pre-crisis levels. Specifically, the state’s contribution to the National Social Security Fund in 2024 is projected to be a ridiculous $87,542 (3% of 2019 value), compared to public sector funds, which are set to receive $184 million (86% of 2019 value). For service ministries, which collectively size-up to 32% of their 2019 baseline ($0.59 billion in 2024 compared to $1.8 billion in 2019),⁶ have seen uneven recovery rates: the Ministry of Education and Higher Education is allocated 14% of its 2019 budget size, the Ministry of Social Affairs 33%, and the Ministry of Public Health 85%.

A large budget reserve will enable widespread discretionary public spending, bypassing parliament

Lebanon’s 2024 budget reserve is projected to comprise the largest expenditure line, at $880 million (27% of total expenditure), the highest since 2017 ($920 million; 5% of total expenditure). This is not only indicative of a severely weak public financial planning,⁷ but also strips parliament of its role as scrutinizer of public spending. Indeed, the budget reserve is left for “contingency spending” that does not pre-allocate the purpose/function of how funds are spent. Spending reserve funds requires approval from the Council of Ministers and can be spent on miscellaneous activities, including financing hospital bills or procuring goods and services not accounted for in the budget.

Despite the 2024 budget being submitted on time by the cabinet to the parliament, for the first time in a decade, it is not indicative of improved public financial management

The Ministry of Finance and cabinet have both adhered to the budget calendar, meaning that the 2024 budget could be the first to not violate the constitutional budget deadline since 2002.⁸ However, this timely budget preparation amounts to little more than an accounting exercise that disconnects expenditure and revenue structures from policy objectives that foster inclusive recovery. Social and capital spending remain suppressed, while regressive taxes have markedly increased. The speedy budget preparation instead appears to be an attempt to reassure the International Monetary Fund, rather than a sign of a capacitated public finance administration, as the cabinet reserved only six days to review and approve the budget proposal submitted by the Ministry of Finance.⁹