Last Friday, Lebanon's Finance Minister Youssef Khalil announced the referral of the 2025 Budget Bill to the Cabinet. The proposed budget outlines expenditures of $4.77 billion against revenues of $4.58 billion, resulting in a deficit of $196 million.

The bill includes adjustments in tax and fee calculations but does not introduce new taxes or fees. Instead, it plans to cover the deficit through internal borrowing via treasury bond issuances.

According to a report published in Al-Akhbar newspaper, the 2025 Budget highlights a significant expansion in spending, with a 38.7% increase anticipated. Estimated expenditures for the current year are set at approximately LBP 427.695 billion, compared to LBP 308.435 billion in 2024, reflecting an increase of LBP 119.260 billion ($1.33 billion). This expansion primarily focuses on current expenditures, but the largest amounts remain unspecified. Current expenditures are projected to rise from LBP 276.498 billion ($3 billion) to LBP 385.808 billion ($3.9 billion), marking an increase of $830 million.

Notably, $475 million is allocated for "various unspecified compensations," and an additional $7 million is set aside to enhance the "reserve for undistributed salaries and wages." Temporary transportation allowances will increase from $112.5 million to $174.1 million, an additional $61.6 million. Despite these increases, social benefits expenditures remain largely unchanged, with only a slight rise in hospital and medical center treatment costs from $168 million in 2024 to $182 million in 2025. There is also a notable increase in the "contingency reserve," rising from LBP 25.538 billion ($285 million) to LBP 35.338 billion ($394 million).

The 2025 Budget anticipates a revenue increase of LBP 101.693 billion ($1.13 billion), reaching LBP 410.128 billion ($4.58 billion). While tax revenues, which represented 78% of total revenues in the 2024 budget, will constitute 76% of the new budget's revenues, amounting to LBP 326.416 billion ($3.64 billion), non-tax revenues are expected to be around LBP 83.712 billion ($935 million). Tax revenues are projected to rise by $931 million, with non-tax revenues increasing by $205 million. The majority of tax revenues will come from income and profit taxes, customs duties, and value-added tax. Non-tax revenues will include contributions from public administration revenues, state property, casino revenues, Beirut Port, international and local communications, Beirut International Airport, lottery sales, administrative fees, and various other sources.

The Ministry of Finance expects an increase in income tax revenues despite no major changes to the tax system, estimating LBP 29.054 billion compared to LBP 16.810 billion for 2024. Conversely, salary and wage tax revenues are projected to rise from LBP 431 billion to LBP 8.488 billion, while revenues from capital gains tax are expected to increase from LBP 1.062 billion to LBP 3.875 billion. However, revenues from interest income tax on banks will decrease from LBP 2.993 billion to LBP 1.440 billion. Revenues from real estate properties will drop from LBP 36.062 billion in 2024 to LBP 29.525 billion. Domestic duties on goods and services will rise to LBP 191.266 billion ($2.13 billion), with the value-added tax contributing the most, increasing by LBP 39 billion ($436 million) to a total of $1.56 billion (32.8% of total budget expenditures).

Unlike the 2024 Budget, which did not record a deficit, the 2025 Budget shows a deficit of 4.11% of expenditures. This deficit will be financed through internal loans amounting to LBP 17.566 billion ($196.2 million), recorded under "loans contracted by the state for the benefit of the treasury" as part of exceptional revenues. Financial expenditures in the budget total LBP 31.535 billion ($353 million), including LBP 7.482 billion in interest on internal loans and LBP 24.002 billion in interest on external loans. Emergency and exceptional expenditures are allocated LBP 19.587 billion, to be used as needed for various items.

Sources indicate that controlling the exchange rate is feasible as long as the government can manage its spending and balance its budget. If the government maintains this balance, the deficit will not exert market pressure on the exchange rate. The central bank has managed to control the exchange rate temporarily by coordinating with the government and using tax mechanisms to absorb liquidity in Lebanese pounds, while paying public sector salaries in cash dollars. This mechanism creates a narrow loop between absorbing liquidity in pounds and requiring taxpayers to convert their dollars to pay taxes. These dollars are then used by the central bank to pay public sector salaries and build a foreign currency reserve currently totaling $1.8 billion. This reserve matches the treasury’s various accounts in pounds or dollars.

Despite these measures, the long-term sustainability of this mechanism remains uncertain. The limited consumer capacity under government austerity may constrain the flow of dollars, causing fluctuations in the exchange rate. The ability to control the exchange rate for the coming months remains viable, but its effectiveness beyond that timeframe is uncertain.

The 2025 Budget allocates LBP 50.678 billion ($566.2 million) for consumables. Of this, 36% is dedicated to operating transportation means, including fuel for vehicles worth LBP 16.690 billion ($186.4 million). Government agencies' utility bills for water, electricity, and telecommunications amount to LBP 3.570 billion, or $39.8 million.