In the shadow of systemic corruption and escalating inflation, Lebanon's government approves significant public sector salary adjustments retroactive to December 2023, sparking debates on economic sustainability and the effectiveness of anti-corruption measures amidst a backdrop of financial crisis and public unrest.
Despite evidence of corruption in the public sector, the Council of Ministers (COM) approved a new package of public wages on February 28, 2024, retroactive to December 1, 2023. The package multiplies monthly wages by three for all retirees and for active members of the security and armed forces, and by two for active members of public administrations. Consequently, all public employees will now receive a total of nine times their basic salaries, positioning the range of salaries in the public sector for both active-duty and retired individuals between approximately $400 and $1,200. Notably, these salaries will be retroactively calculated from December 2023. Public sector employees are also set to benefit from additional transportation remuneration, which varies according to their grade or rank. The total cost of this salary adjustment is estimated at LBP 2,927 billion per month, with the increase effective on a retroactive basis since December 1, 2023. Importantly, public sector employees who have previously benefited from a salary increase, including judges, professors at the Lebanese University, Ogero employees, and NSSF employees among others, were excluded from this adjustment.
This move is viewed as a new source of inflationary pressure on the economy. The pervasive corruption has been profoundly damaging to the state in every conceivable way. Adopting anti-corruption policies marks a step forward, yet the primary focus remains on enforcing these policies and making it more difficult for corrupt practices to occur in the first place. Remarkably, for the third consecutive year, the average annual inflation rate has remained in the triple digits, standing at 222.42 percent in 2023.
Repercussions
It is yet to be determined whether the new package is a measured and considerate approach, or if it starkly contrasts the disastrous package approved in 2017, which significantly contributed to the growth in public debt, loss of foreign exchange reserves, and further exacerbated the current crisis by increasing public wages by 50% to 100%. The limited accountability and weak institutions inherent in Lebanon’s sectarian power-sharing system have severely impacted the country’s economy and the state’s capacity to provide basic public services. Endemic corruption and elite capture have transformed the Lebanese public sector into a tool for rewarding supporters, with several state institutions becoming strongholds of sectarian elites. Weak and disorganized policy responses from the government since the crisis’s inception have eroded any remaining trust in its ability to mitigate the crisis’s impact and set the country on a path to sustainable recovery.
The economic and social impacts of the crisis have been staggering: a contraction of estimated 40 percent in output over 2019–22, a loss of about 98 percent of the lira’s value in the parallel market, triple-digit inflation decimating real incomes, and sharp increases in unemployment and poverty. After three years, the public sector is failing, the provision of public services is nearly non-existent, and the banking sector has collapsed. Informality and the shadow economy have markedly increased. The low level of preparedness and quasi-absence of a crisis management plan have significantly exacerbated the onset of this fast-developing and multifaceted crisis. The risk of seeing recovery and development prospects completely obliterated is rising, along with multiple risks threatening short- and medium-term perspectives.
Details of the Hike
This adjustment is deemed “temporary,” meaning it will not contribute to the salary base and thus will not be included in end-of-service amenities, Nassib Ghobril, Chief Economist of Byblos Bank Group, informed NOW LEBANON. “A new salary scale, along with sector reforms, is yet to be adopted. The cost will be covered from the 2024 budget reserves. Additionally, the government has reserves at the Central Bank totaling 386,400 billion Lebanese pounds, divided into fresh dollars and Lebanese currency, to cover the increase’s cost, which is expected to be around 396 billion LBP, approximately USD 33 million monthly,” he added.
Ghobril noted that the new hike does not ensure that employees will not resort to strikes again or escalate their salary adjustment demands. It also implies that the budget will not achieve the balance anticipated in the ratified 2024 budget voted on last month. “Obviously, due to the ongoing war in South Lebanon and weak revenue collection, it’s uncertain if the revenues projected by the 2024 budget will be met,” he stated. Ghobril believes the government should have sourced the salary hike’s cost from traditional revenue sources, which have been overlooked, such as introducing new taxation schemes, fighting tax evasion, combating smuggling, enforcing existing laws, and collecting fees from violations in seaside properties. “The quickest solution would have been to open public administration five days a week as a primary source of income. Public sector employees have been on strike for two years, significantly affecting revenue collection,” he remarked. “Sending positive signals to
the sector through reforms and governance measures, such as eliminating the payroll of hundreds of non-existent employees in the administration and closing about ninety non-operational public institutions and independents, is necessary,” Ghobril disclosed. He suggested that the budget should have been reevaluated when the war in Gaza and South Lebanon commenced. “Two scenarios should have been proposed, with revenues adjusted according to the conflict’s escalation,” he concluded.
Features of the New Package
– The increase for retirees should be at least 8 million LBP.
– Active members of the security and armed forces will receive 9 million LBP as a transportation allowance.
– Active members of public administrations will be granted between 8 and 16 gasoline tanks (depending on rank) as a transportation allowance, at 1.5 million LBP per tank, provided they report to work for 18 days a month (4 days a week).
– Furthermore, active members of public administrations will receive a monthly productivity allowance between 150 and 250 USD.
Overall, it is estimated that public retirees’ monthly salaries (at 89,500 LBP per USD) will range between 230 and 900 USD; and for active public members, between 400 and 1,200 USD. Importantly, the wage increase is expected to cost around 3 trillion LBP, bringing the total monthly wage bill to about 10 trillion LBP. As these payments will be made in USD, they will cost the BDL about 111 million USD each month. Adding the cost of Circular 158 at 40 million USD, the total monthly expenditure of these arrangements will be at least 150 million USD. This poses a significant challenge to the BDL, especially in a turbulent political and security environment, in addition to the burden of stabilizing the exchange rate and monetary aggregates. The success of these measures hinges on whether USD inflows (from remittances, tourists, international organizations, etc.) continue and tax revenues increase. Previously, the minimum wage (LBP 675,000) per month equated to $33.75 at the exchange rate of LBP/USD 20,000, at a time when extreme poverty is defined by $5.5 per day per person. In the public sector, employing close to 300,000 individuals, salaries for 4th and 5th category employees have eroded to $71.5 and $47.5, respectively, from $953 (1,430,000 LBP) and $633 (950,000 LBP) at the official exchange rate. Regarding the highest public wages, salaries for 1st, 2nd, and 3rd categories have dramatically decreased from $1,467, $2,000, and $3,000 at the official exchange rate to $110, $150, and $220 at the exchange rate of LBP/USD 20,000. The military services’ salaries and indemnities have been most affected by the current economic crisis, with a Major General’s salary now worth $360.60, whereas the lowest salary, that of a Grade 1 soldier, is only $64.80.
Military Personnel
In detail, active-duty military personnel and retirees were awarded an additional three salaries, with the increase being no less than eight million Lebanese pounds, in addition to a driver’s allowance for retired officers with a driver, set at five million Lebanese pounds. Administrative employees received two salaries, a monthly bonus based on specific productivity criteria, and a daily attendance allowance ranging from eight to sixteen liters of gasoline, with a maximum of 14 working days per month, provided there is no absenteeism. Despite the increase, the salaries “still do not match the cost of living, nor do they correspond to the prices of goods, services, health bills, and medical expenses, failing to meet our demands,” according to sources among retired military personnel.
Warning, Study, and Escalation
The unsatisfactory results have fostered a cautious atmosphere regarding the future. Employees and retirees acknowledge that the recent adjustments hold little real value: they do not cover living expenses, nor will they benefit from the increases after retirement. As such, all options remain on the table for both employees and retired military personnel. According to sources speaking to NOW LEBANON, “the association will study the figures approved in the session, compare them with inflation rates and other indicators, and base decisions on these findings, potentially recommending the suspension of the strike or its continuation.” They also noted that the approved measures do not integrate the increases into the core salary, social, health, and medical benefits, support for official school and university education, support for government hospitals, and the file of guarantee funds, which were topics postponed for today’s discussion. These issues will serve as a basis for mobilizing employees, either through street protests or a general strike.
Maan Barazy is an economist and founder and president of the National Council of Entrepreneurship and Innovation. He tweets @maanbarazy.
The views in this story reflect those of the author alone and do not necessarily reflect the beliefs of NOW.
