Lebanon’s 2022 draft budget forecasts 20.8% deficit amid financial crisis

Lebanon’s debt-ridden government expects a 20.8 percent deficit for the coming year, according to a draft budget released on Jan 21.

The plan, seen by Reuters, will see ministers put forward a long-term treasury advance to Electricité du Liban, Lebanon’s electricity company, of 5.25 trillion Lebanese pounds ($3.5 billion).

The advance will be provided to pay for fuel purchases, interest and loan installments, in a country that has been hit by energy shortages.

Last year, Lebanon’s projected budget had a deficit of 31.3 percent, and the plan was not passed by the country’s parliament.

Political dissension and escalating tensions between communities have had a negative impact on economic growth, compounding Lebanon’s woes since its 2019 default on a $90 billion debt.

Nassib Ghobril, head of research at Lebanon’s Byblos bank, warned that the government’s projection of a lower deficit depends on whether it can “improve the investment climate for business.”

Speaking to Arab News, he argued that a 10 percent tax increase on imported goods “won’t be effective if the government keeps on avoiding combatting custom evasion and smuggling.”

Ghobril said the cost of smuggling to other countries, more specifically Syria, runs into the hundreds of millions of dollars.

He added that Lebanon’s 2022 growth, which he estimates contracted by 12 percent in 2021, and 25 percent in 2020, will depend on the Lebanese government’s next policies.

“There are two scenarios: either the government reaches an agreement on economic reforms, with a deal with the IMF (International Monetary Fund), and this will push growth into positive territory after four years of contraction; or it won’t and we will face another year of economic contraction,” he said.