Khalil: Reformative Budget Approval Enables Financial Recovery

Caretaker Minister of Finance Youssef Khalil considered on Monday that "the 2023 budget project, currently under discussion in the Council of Ministers, is nearing its end, and it is a continuation of the corrective and financial recovery process that started with the approval of the 2022 budget, followed by several executive measures, which led to increasing the projected revenues for 2023 to about 8-9% of the GDP, compared to around 6% of the GDP in 2022."

Khalil stated in a working meeting held at the Ministry of Finance, attended by the representative of the International Monetary Fund in Lebanon, Frederico Lima, and a delegation from the Fund to discuss issues related to financial management and the 2023 budget: "Although the completion of the 2023 budget project and its submission to the Council of Ministers comes late and beyond the constitutional deadlines, its importance lies in completing the corrective measures and reducing the distortions and gaps resulting from the multiple exchange rates in the economy, which would enhance the revenues and contribute to the recovery of the public treasury."

He explained that "the budget did not impose new taxes on the citizens, as some believe, but it corrects the values of some taxes, fees, and licenses, which have become very low to the extent that they no longer cover the cost of services provided under the currency depreciation, necessitating their correction."

Khalil pointed out that the tax burden has decreased from 16% before the crisis to 4%, estimated in 2022. On the contrary, adjusting tax policies to inflation rates prevents imposing additional burdens on taxpayers due to macroeconomic fluctuations (Indexation). The 2023 budget also addresses the revaluation of assets and inventory and other measures to correct the impact of the exchange rate deterioration on taxpayers.

He added that "the 2023 budget also aims to strengthen tax compliance and reduce tax evasion, as well as expand the tax base by targeting the informal sector, which has expanded in recent years due to the crisis and the cash economy, for example, by correcting the value of fines that no longer achieve their purpose, especially encouraging tax compliance."

Furthermore, Khalil added that "the budget project also aims to correct the values of some taxes, fees, and licenses that have become low due to the exchange rate deterioration. Additionally, some fees collected in return for services have fallen below the cost of the provided service, prompting the need for correction."
Khalil also stated that "the budget project also addresses strengthening tax compliance and reducing tax evasion, as well as expanding the tax base by targeting the informal sector, which has expanded in recent years due to the crisis and cash economy. For example, this includes correcting the value of fines that no longer serve their intended purpose, especially to encourage tax compliance."

In response to claims that the 2023 budget lacks the desired reforms, Caretaker Minister of Finance confirmed that the Ministry is "working on completing the 2023 budget project and preparing the 2024 budget within the constitutional deadlines. Despite all obstacles, including the living conditions of public sector employees and the difficulty of their continuous work due to the scarcity of technological and administrative capabilities and the lack of financial data, we are making efforts to draft an independent law aimed at completing the required tax and financial reforms that support and align with the government's program for financial and economic reform."

It is worth mentioning that the proposed reforms are also part of the recommendations of the International Monetary Fund and other supporting entities in their reports resulting from the technical missions that evaluated the financial situation during the past two years.

He also pointed out that "the 2023 budget project also aligns with the policy of the monetary authorities regarding financing the treasury, according to the monetary plan expressed by the Governor of the Central Bank. 

The plan aims to control the deficit, enhance revenues, and enable the financial capabilities of the treasury," considering that restoring the financial capabilities of the treasury, along with its contribution to economic and monetary stability and supporting the monetary authorities in maintaining exchange rate stability, would contribute to promoting social justice and supporting marginalized groups (through income redistribution and increased social spending) and proceeding with the reform of the public sector, activating public administration, and providing services to citizens in a meaningful way."

He emphasized that "the most important priority is to preserve the stability that the financial and monetary authorities have sought to achieve in recent months, given the measures taken. However, it remains unprotected and subject to fluctuations, especially in the coming period." He stated that building trust is the most crucial foundation for achieving sustainable stability."

He expressed hope that "the discussion of the 2023 budget project will be constructive and free from political conflicts because the approval of its reformative articles will allow the completion of the workshop for recovery and financial revival, supporting the financial and monetary authorities in facing the remaining and numerous risks and obstacles."