Lebanon’s budget deficit in the first four months of 2019 dropped by nearly 28 percent of spending compared to the same period of 2018, thanks to a decline in expenditures, the Finance Ministry said Friday.
This is considered a significant drop and could give the government more drive to narrow the fiscal deficit at the end of the year by a considerable percentage.
The figures released by the Finance Ministry showed that the fiscal deficit reached $1.38 billion in the first four months of 2019, narrowing by 28 percent from a deficit of $1.91 billion in the same period of 2018.
The Cabinet, headed by Prime Minister Saad Hariri, finally succeeded Friday in securing Parliament’s approval of the 2019 budget.
The Cabinet has set the deficit at less than 7 percent of gross domestic product in 2019. The International Monetary Fund and ratings agencies have questioned the government’s ability to meet this target.
The deficit over the four-month period was equivalent to 28.5 percent of total budget and Treasury expenditures, relative to 33.4 percent of spending in the same period of 2018. Government expenditures reached $4.84 billion and declined by 15.4 percent from the same period of 2018, while revenues regressed by 9.2 percent to $3.46 billion.
The decline in spending is due to a drop of $465.6 million in general expenditures, a decrease of $298.2 million in transfers to municipalities and a decline of $145.6 million in debt servicing in the first four months of 2019.
Nassib Ghobril, chief economist at Byblos Bank Group, said “the narrowing of the deficit, and especially the decline in spending, in the first four months of the year is a positive signal to the markets, as it will help the government in its efforts to reach its target deficit for 2019.”
He added, “It also shows that there is a lot more space to reduce public expenditures if the political will and discipline exist, as public spending reached a record $17.8 billion in 2018, which is equivalent to nearly 32 percent of GDP, a very high level by any standard.”
On the revenues side, tax receipts fell by 3.3 percent year-on-year to $2.73 billion in the first four months, of which 29.4 percent, or $800.6 million, were in VAT receipts that decreased by 17 percent annually.
The distribution of income tax receipts shows that the tax on interest income accounted for 50.8 percent of income tax revenues in the first four months of 2019, followed by taxes on wages and salaries with 28.3 percent, tax on profits with 14.1 percent and the capital gains tax with 5.6 percent.
On the expenditures side, total budgetary spending, which includes general expenditures and debt servicing, declined by 12 percent year-on-year to $4.54 billion in the first four months of 2019.
“The decline in tax revenues, especially the drop in VAT receipts, shows that the negative impact of the tax hikes that were implemented at the start of 2018 continues to backfire into 2019,” Ghobril said. “It is not normal that 51 percent of tax revenues consist of taxes on interest income, while the corporate income tax accounts for just 14 percent of tax receipts.”
“Revenues from taxes on profits regressed by 8.5 percent year-on-year in the covered period, which shows that the increase in taxes led to a decline in the income of companies and to an increase in tax evasion.”
Tax receipts accounted for 82.7 percent of budgetary revenues and for 78.8 percent of total Treasury and budgetary receipts for the covered period.
The Daily Star