As wage demands return, Lebanon’s finance minister recalls the cost of 2017

Report by Lea Fayad, English adaptation by Mariella Succar

Lebanon’s Finance Minister Yassine Jaber warned against granting public sector salary increases without a comprehensive financial plan, saying the country is still paying the price for the 2017 wage hike that worsened its fiscal crisis.

“Salary increases cannot be decided arbitrarily,” Jaber said, referring to the public sector pay scale approved in 2017. “We are still living with its repercussions and know where it led the country.”

The 2017 salary scale was adopted under public pressure and with broad parliamentary backing, despite the absence of a detailed financial assessment or reforms to Lebanon’s bloated public sector. 

At the time, the state was already heavily indebted and struggling with chronic waste, corruption and weak revenues.

With parliamentary elections approaching months later, officials defended the decision as a necessary step, promising reforms would follow.

Then-finance minister Ali Hassan Khalil said at the time that the government was “on the right track,” adding that reforms would come after the salary scale was approved.

Initial estimates placed the cost of the measure at $800 million, later revised to $1.2 billion. The final cost, however, exceeded $2.5 billion, according to official figures.

To finance the increase, the government imposed a package of new taxes, including a rise in value-added tax, affecting households across the country. Weak tax collection meant the measures covered only a fraction of the cost.

Within a year, Lebanon’s budget deficit nearly doubled, rising from $3.7 billion in 2017 to $6.3 billion in 2018. The government turned to additional borrowing from the central bank, drawing down reserves and increasing pressure on the financial system.

Economists say much of the additional income went toward consumption, driving higher imports and demand for foreign currency. Inflation rose from about 4.5% in 2017 to more than 6% in 2018, eroding the purchasing power of public sector wages.

Jaber’s remarks come as renewed debate emerges over public sector pay, with elections once again on the horizon and no comprehensive plan in place to reform state spending or address overstaffing.