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CHAMPION OF THE DAY
Parliament passes budget at
a fraction of pre-crisis figures
Exchange rate used fails
to meet IMF requirements
Parliament has passed the 2022 budget just three months before the end of the year, with projected total spending of LL40.9 trillion ($1.1 billion at an exchange of LL37,000 to the dollar) and revenues of LL30 trillion ($810 million).
This compares with pre-crisis actual spending (including Treasury operations) of $17.8 billion in 2018 and actual revenues (including Treasury operations) of $11.5 billion.
The projected budget deficit for 2022 is $294 million compared with an actual fiscal deficit of $6.2 billion in 2018.
The 2022 budget is based on an exchange rate of LL15,000 for the revenue figures. Part of the expenditures will be in lira such as salaries while the other part such as government purchases will be paid based on the market exchange rate such as fuel purchases and office supplies.
The budget law was approved by less than 50 percent of the Parliament’s members totaling 128 MPs. Only 106 members were present, ensuring a quorum, out of which 63 voted in favor of passage of the budget law.
The legislators have approved tripling the basic salaries of all public sector employees including the army and security forces as well as retirees and contractual government workers.
By using an exchange rate far below the parallel market rate, the government fails to meet the reforms required by the International Monetary Fund (IMF). A visiting IMF staff team last week said in a statement before the approval of the budget: “The long delay in approving [the 2022 budget] means that for macroeconomic purposes the focus should now turn to preparing and approving a credible 2023 budget. This should be based on realistic macroeconomic assumptions, with the necessary revenue raising measures, including the use of a realistic exchange rate (i.e., the Sayrafa rate that should become the market rate with exchange rate unification) for all tax purposes.”
According to the IMF statement, using a unified exchange rate would enable the government to significantly increase social and investment spending and adjust public spending in order to resume the basic functioning of public administrations. “Existence of the multiple exchange rates causes significant distortions to economic activity, undermines the operations of the public sector, and creates opportunities for corruption and rent-seeking, leading to excessive pressures on the Central Bank’s foreign currency reserves,” the IMF staff said.
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Sep 27, 2022
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