Fiscal deficit
widens 66 percent

Revenues from VAT

signal stable consumption

The fiscal deficit for 2018 increased to $6.2 billion from $3.8 billion in the previous year driven by a surge in expenditure and stagnation in revenue growth, according to the Ministry of Finance (MoF).

The MoF released the figures for this year’s annual budget three months later than scheduled.

The deficit represents nearly 11 percent of GDP according to the World Bank’s GDP estimates for 2018.

Total expenditure jumped 16 percent to $16.4 billion.

More than one third of total expenditure consists of wages, salaries, and pensions. “The growth in public expenditures is tied to the public sector wage scale whose cost exceeded preset figures,” Bank Audi said in its Economic Report for 2018.

Total revenues remained relatively unchanged at $10.7 billion despite the tax hike approved by Parliament in the fourth quarter of 2017 to finance the pay rise in the public sector. Tax revenues increased by three percent.

The lack of growth in public revenues in 2018 is attributed to economic sluggishness amid weak real sector activity, according to the Bank Audi report. This was also the result of the high revenue base effect of the previous year, driven by the one-off tax on financial engineering operations that was imposed on the banks, the report said.

Despite the economic slowdown, value added tax (VAT) rose 11 percent to $2.5 billion, driven by a ten percent increase in the VAT rate to 11 percent. The new rate was imposed starting January 2018.

Transfers to the loss-making Electricité du Liban soared 32 percent, to $1.8 billion. Interest payments on public debt increased eight percent, to $5.4 billion.

The budget recorded a total primary deficit of $636 million compared with a total primary surplus of $1.43 billion in the previous year.

At the CEDRE donor conference the government pledged to reduce the deficit-to-GDP ratio by one percent on annual basis over a period of five years.

Total expenditure for the 2019 draft budget is projected at $17 billion. The measures planned to cut spending and boost revenues aim to reduce the deficit-to-GDP ratio to 7.6 percent from the 11.2 percent of GDP realized in 2018.