--- title: "The Budget and Economic Revival | Ghazi Mahmoud" url: https://ghazimahmoud.com/en/articles/2024-02-01-fea43f/ lang: en description: "The 2024 budget passed by Parliament has revealed the caretaker government's persistence in evading its responsibility to find a solution to the financial and economic crisis ravaging Lebanon." --- [All articles](https://ghazimahmoud.com/en/articles/) # The Budget and Economic Revival [Brig. Gen. (Ret.) Dr. Ghazi Mahmoud](https://ghazimahmoud.com/en/about/) 1 Feb 2024 · 7 min read [The Lebanese economy](https://ghazimahmoud.com/en/articles/leb/)[The world economy](https://ghazimahmoud.com/en/articles/world/) The 2024 budget passed by Parliament has revealed the caretaker government's persistence in evading its responsibility to find a solution to the financial and economic crisis ravaging Lebanon. It showed those responsible for preparing public budgets to be captives of the legal text, contenting themselves with drawing up schedules of expenditures and revenues that reflect no economic or developmental direction. Particularly as Public Accounting Law No. 14969, issued on 30 December 1963, and its amendments, defines the budget as a legislative instrument in which the state's expenditures and revenues are estimated for an upcoming year, and under which revenue collection and spending are authorised. Paradoxically, the budgets of successive governments fared no better, as they too were devoid of developmental and social programmes. Indeed, these budgets were often burdened with debt to finance the chronic deficit on the one hand, and served as an occasion to impose further fees and taxes on the other. This impeded the growth of the national economy, raised the costs of domestic production, and prevented it from competing with foreign products. Meanwhile, fees and taxes drove up the cost of financing private investment, whereas borrowing led to higher interest rates and to the state competing with the private sector for capital, whose owners preferred to place it in banks or subscribe to treasury bills. The importance of the public budget lies in its being one of the primary tools for formulating state public policies and delivering developmental and social programmes, ultimately stimulating economic activity and encouraging investment. For his part, the British economist John Maynard Keynes holds that public budgets play a central role in stimulating economic growth and productive employment, as well as in supporting macroeconomic stability. Many countries around the world have moved to develop their budgets into a planning tool incorporating future projects and programmes on the one hand, and a means of monitoring budget execution, questioning those who implement it, and holding them accountable on the other. The Lebanese legislator addressed the matter of monitoring budget execution, as Article 87 of the Constitution stipulates that "the final financial administration accounts for each year must be submitted to Parliament for its approval before the publication of the budget for the year following the year that follows that year," and consequently the closure of budget accounts is sent to the Court of Audit before 15 August of the year following the year of the budget to be approved. Article 195 of the Public Accounting Law also stipulates that the Directorate of Public Accounting must send the general mission account to the Court of Audit before 1 September of the year following the account year. It is worth noting that the closure of accounts is a schedule containing the items of actual expenditure compared with what was allocated in the budget subject to the closure of accounts. It makes it possible to verify that the government has abided by the licence or authorisation to spend that it obtained from Parliament and has not exceeded the appropriations stipulated in the budget law; it is therefore an oversight measure whose importance lies in allowing verification of its proper use of public funds. This process is carried out by comparing actual budget expenditure against the invoices and receipts that the Ministry of Finance must retain to justify disbursement. Parliament's passage of the budget without the closure of accounts and the mission account confirms the intention of those who control political and financial decisions to continue sidelining oversight and accountability, by failing to apply Article 87 of the Constitution referred to above, which requires Parliament's approval of the final financial administration accounts for each year before the publication of the budget for the year following the year that follows that year. This is a precedent that was set when the 2017 budget was passed and was used once again in passing the current budget, encouraging corruption and covering up persistent waste in the public sector. At a time when many countries around the world have enacted a dedicated public budget law defining its framework, regulating its provisions, and turning it into a blueprint of future programmes containing the plans and objectives to be implemented, Lebanese public budgets still lack even the bare minimum of developmental and reformist orientations, as well as the appropriate criteria and rules for evaluating performance against specific programmes aimed at achieving public policies. One of the causes of Lebanon's financial and economic crisis lies in budget deficits that plunged the country into indebtedness renewed every year with each new budget, while continued borrowing to plug that deficit constituted one of the gravest and most dangerous blunders of the state's fiscal policies. This drove up public debt relative to gross domestic product and caused a sustained inability on the part of the state to repay its domestic and external debts. Continued borrowing and the expansion of spending led to a loss of fiscal regularity and a departure from the fundamental rules of public finance and the science of finance. As for the balance of the 2024 budget, meaning the absence of a deficit in it, this does not correspond to the true financial position of the Lebanese state. That is because this budget made no provision for debt servicing obligations, even though by the end of 2019, before the crisis worsened, public debt exceeded 91 billion US dollars, with its servicing estimated at 1.6 billion US dollars while arrears exceeded 6.4 billion dollars. Omitting these obligations from budget expenditures does not absolve the state of them, especially since holders of Eurobonds are not limited to Lebanese parties. Meanwhile, the tax amendments that formed the centrepiece of the 2024 budget and the primary source of its revenues lacked any economic or social dimension. Income tax on salaries and wages was multiplied by roughly 60 times and calculated on the basis of the parallel market dollar exchange rate of 89,500 Lebanese pounds, whereas the salary increase for public sector employees did not exceed 7 times. This prompts questions about the wisdom behind this increase, and where those employees and retirees are supposed to find the means to pay the increases owed by them. The budget's objectives are thus confined to securing additional revenues for the public treasury, without regard for the conditions the national economy is going through or its capacity to provide financing, and without taking into account citizens' economic and social circumstances or their ability to bear further fees and taxes, particularly public sector employees, whether military personnel, civilians, or retirees. This renders the outcomes of the approved tax increases uncertain, amid tax evasion exacerbated by rising fees and taxes and the failure to take any practical measures to curb evasion and smuggling. The budget, and behind it the government and Parliament, ignored the issue of deposits trapped in the banks, indicating that the executive branch is in no hurry to find a suitable solution for them and that revival from the crisis remains out of reach. Yet fiscal policies ought to have aligned with the measures and circulars of Banque du Liban, especially following the bank's move to reconsider Circular 151 so as to allow monthly withdrawals from "eligible and ineligible" deposits, albeit in modest amounts. That could have been done by including in the public budget a nucleus for reconstituting public debt dues, helping to return part of depositors' funds and release their deposits. While an observer can understand why the public budget is devoid of developmental programmes and incentives to encourage investment and expand the national economy, it is neither understandable nor justifiable that it should be devoid of any genuine reforms that are indispensable for addressing the crisis and its repercussions. Especially since the importance of the public budget including the required structural reforms and a plan for financial and economic revival lies in the fact that budget provisions reach every economic sector through fiscal legislation. That makes it a fitting venue for putting forward integrated solutions, and one through which the path leading to recovery and economic revival can be charted. Translated from Arabic with AI. [Read it in Arabic](https://ghazimahmoud.com/articles/2024-02-01-fea43f/) ## Published in - [Channel 23](https://ch23.com/Article/140895/الموازنة-والنهوض-الاقتصادي) - [Lebanon Files](https://archive.lebanonfiles.com/2024/articles/باقلامهم/الموازنة-والنهوض-الاقتصادي/) - [OZ Arab Media](https://ozarab.media/الموازنة-والنهوض-الاقتصادي/) - [Radar News](https://www.radar-news.net/الموازنة-والنهوض-الاقتصادي-بقلم-غازي/) ## More on the Lebanese economy [All articles on this subject](https://ghazimahmoud.com/en/articles/leb/) [6 Dec 2023 · The Fragile Economy and the Devastating War · Channel 23, Radar News ](https://ghazimahmoud.com/en/articles/2023-12-06-3647a9/) [22 Nov 2023 · More Than Mere Monetary Stability Is Needed · Channel 23, Lebanon Files ](https://ghazimahmoud.com/en/articles/2023-11-22-de319e/) [22 Nov 2023 · Monetary Stability and a Sad Independence · Radar News ](https://ghazimahmoud.com/en/articles/2023-11-22-867c3f/)