Public sector salary challenge: Lebanon's strategy to support salary disbursements

The Lebanese government faces a significant financial burden as it disburses the monthly salaries of public sector employees, including the military, totaling $80 million.

The workforce comprises approximately 400,000 active and retired personnel, with the responsibility for payment resting on the shoulders of the Banque du Liban (BDL).

Following a smooth payout in August, the BDL is now preparing to disburse salaries in dollars for September and potentially October, following discussions held during a Central Bank Council meeting on Monday.

Previously, there was a debate surrounding the practicality of dollar payments as the exchange rate gap between the market rate, approximately LBP 89,500 per dollar, and the Sayrafa exchange rate, set at LBP 85,500 per dollar, narrowed to around LBP 4,000. This means the employee benefit was reduced to approximately five percent from the previous 20 percent.

The prevailing opinion was that these disbursed dollars would circulate in the market without impacting the exchange rate.

However, if salaries were paid in Lebanese lira, which would amount to around LBP 7.5 trillion, it would cause market turmoil and pressure. Therefore, a consensus was reached to pay salaries in dollars, secured from tax revenues, with the BDL strategically purchasing some from the market.

Sources within the BDL have reported a slight improvement in tax revenues.

According to the government's priorities, they aim to secure funds for cancer medications, treatment of chronic diseases, and some military needs without affecting mandatory reserves or printing more Lebanese lira.

Customs and Value Added Tax (VAT) revenues have shown positive growth trends, but efforts are required to increase collections, particularly in the real estate and utility sectors. Each tax payment made in Lebanese lira eases pressure on the exchange rate even further.

The government's actions are still part of what is known as the "day-by-day" approach, emphasizing the urgent need for comprehensive financial and banking reforms that will stabilize the market and establish clear plans for the future, ultimately contributing to economic recovery.