Wazni’s 2021 draft budget forecast deficit at $3.2 billion


Wazni’s 2021 draft budget forecast deficit at $3.2 billion

(The Daily Star)-28/01/2021

The 2021 draft budget that caretaker Finance Minister Ghazi Wazni submitted to the Cabinet projected this year’s deficit at LL4.687 trillion ($3.2 billion) compared to LL6.450 trillion ($4.3 billion) in 2020.

The new deficit budget figures for 2021 only include the cost of debt servicing in Lebanese pounds and not those in US dollars, after the government defaulted in the payment of the outstanding Eurobonds.

The debt servicing in 2021 is projected to be LL3.131 trillion compared to LL4.6 trillion in 2020.

But this deficit does not include allocations to EDL, estimated at LL1.5 trillion to purchase fuel oil for the power plants.

This brings the total deficit to LL6.187 trillion ($4.12 billion).

This deficit is calculated on the basis of the difference between revenues and expenditures and varies due to the presence of additional revenues and expenditures from the attached budgets that were merged into the general budget.

The Finance Ministry calculated the dollar rate at LL1,507 although there are three different rates in the market at present.

The caretaker government has yet to hold a meeting to go through the draft budget. It is not clear if caretaker Prime Minister Hassan Diab has the power to hold a special meeting to review the budget after he submitted his resignation in 2020.

Even if approved by the Cabinet, the bill still needs the endorsement of Parliament.

The budget also forecast total government expenditures at LL18.249 trillion ($12.16 billion) and total revenues at LL13.572 trillion ($9 billion).

The budget did not include the LL200 billion to confront the COVID-19 pandemic, the LL150 billion to help poor families and the LL100 billion to compensate the families that were affected by Beirut Port blast on Aug. 4, 2020.

Nassib Ghobril, head of Economic Research at Byblos Bank, said there are several questions pertaining to the budget for 2021.

“First, will it include a medium term fiscal adjustment framework, given that the International Monetary Fund expected authorities to modify the 2020 budget to include this framework? Second, will the budget include tax increases?” Ghobril asked.

He added that the new budget should avoid at all costs any tax hikes, as the private sector and households cannot bear any additional taxes or hikes on the already existing taxes.

“In fact, it should include tax exemptions, given that the government has provided extension for paying taxes,” Ghobril indicated.

He added that receipts from the tax on interest rates accounted for about 70 percent of income tax revenues in 2020, but interest rates on deposits have declined to less than 1 percent currently.

“So how will the budget offset this decline? The corporate income tax accounted for about 11 percent of income tax receipts last year, down from about 35 percent in 2019. Will the budget compensate for these declines by combating smuggling, and Customs and tax evasion?” Ghobril wondered.

The economist also asked if the budget includes the World Bank’s plan to gradually lift subsidies.

“This is a plan that the authorities requested from the World Bank, and it requires expenditures of $1.5 billion this year in conjunction with lifting the subsidies,” Ghobril said.

He asked that in the absence of a new government and the lack of visibility due to the prevailing crisis in the country, does the budget incorporate multiple scenarios for expenditures, revenues and the deficit?