The cabinet’s announcement of imminent sessions to deliberate the 2023 general budget draft, following its submission by the finance minister, comes after a nine-month delay. The figures outlined in the draft cast light on a projected deficit of around 34 trillion Lebanese pounds. The estimated expenditures amount approximately 181 trillion pounds, with corresponding revenues standing at 147 trillion pounds.

LIMS has observed that this 34 trillion-pound deficit constitutes a historical high, representing a threefold surge from the preceding year’s figure of 10 trillion pounds. Grappling with this deficit poses a considerable challenge, as the government faces restricted options. Global borrowing remains elusive due to the government’s inability to honor Eurobond commitments, while local financial markets remain out of reach due to the ongoing turmoil affecting Lebanese banks. Consequently, the government is left with little recourse other than to seek borrowing Lebanese pounds from the Central Bank. Yet, this path harbors the potential to further weaken the Lebanese pound’s exchange rate. LIMS accentuates the government’s role in this predicament, attributing the currency’s plight partly to the government’s inability to present a balanced budget. Another alternative could involve the Central Bank funding the deficit with US dollars. However, this course of action risks deepening banking sector crisis, intensifying depositor losses, and depleting already strained foreign currency reserves, thereby sowing the seeds for future inflation.

On the revenue front, the government contemplates increasing its income through tariff, tax, and fee hikes. Despite the superficial rationale behind such moves, there looms an inadvertent consequence of hindering economic growth – a chief concern for Lebanon. The nation’s gross domestic product (GDP) prior to the ongoing crisis stood at approximately $54 billion, whereas current assessments peg it at around $20 billion. The government cannot realistically impose more taxes on a smaller GDP and expect higher income.  History has shown that an emphasis on heightened taxes has yielded unintended setbacks, contributing to the erosion of domestic output in previous years. In this light, LIMS stresses the urgency for Lebanon to pivot its approach towards cultivating growth, rather than fixating on tax increases. The pursuit of growth, though lowering taxes, holds the promise of bolstering government revenues, while an overreliance on taxes and tariffs has the potential to breed tax evasion and compel businesses and institutions to shutter operations and relocate abroad.

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