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A multilateral tale

Investigating the Lebanese budgeting process

by Jeremy Arbid

For 12 years, Lebanon did not ratify a state budget, and politicians have never offered an adequate reason to explain why. To understand what went wrong, we need to understand the process. Who should be doing what, and when should they be doing it? What does it actually take to create and ratify a budget, according to Lebanon’s constitution and the Public Accounting Law?

The budget approval process can generally be broken into three phases, which involve four distinct institutions: the drafting of the budget proposal by the Ministry of Finance, the auditing of public finances by the Court of Accounts, and the endorsement of the audit and the draft budget by the Council of Ministers before ratification of both into law by Parliament.

How the budget train derails

In April of each year, the Ministry of Finance issues a circular asking all other ministries and public institutions—a total of about 120 different directorates across the government—to prepare their spending requests and revenue projections for the coming fiscal year, which begins January 1 and ends December 31, according to article 7 of the Public Accounting Law. Also in April, the Ministry of Finance’s budget team, led by budget director Carole Abi Khalil, meets with the finance minister for direction and instruction on what cabinet wants to focus on, and to draft a budget with a clear vision and targets for the next year.

By the end of May, the ministries and public institutions are supposed to send their budget request back to the Ministry of Finance, which then compiles them into one administration-wide budget proposal. Throughout June and July, the budget team meets one-by-one with the rest of the administration to iron out differences on spending priorities and to reconcile discrepancies between previous spending or revenue and the future projections.

On August 1, after compiling all budget requests into one document, Abi Khalil’s team writes a report to the finance minister summarizing the items requiring the minister’s approval. The report might point out where spending could be cut, for example, or how to resolve unjustified spending. With the minister’s decisions in hand, Abi Khalil’s team begins drafting the budget that is submitted to the cabinet by the end of August.

While the draft budget is being prepared by the Ministry of Finance, the Court of Accounts works on closing accounts from the preceding year. This is where the process becomes confused. To close the accounts—in other words, to audit the preceding year’s budget—the court needs to receive that year’s budget numbers from the accounting directorate of the Ministry of Finance in the middle of August. As an example, in 2017 the state should have audited 2016’s public finances so that it could ratify 2018’s budget. The approval process this year obviously did not play out according to the budgeting and auditing provisions in the constitution and the Public Accounting Law. As for the court to close the accounts, Parliament must first have authorized the government to spend and collect money, in the form of a budget.

That way, the court has a legislated budget to work from when making its comparison with what the government was allowed to spend and collect, and what it actually did. Since 2005, there has been no budget, so the court was not closing accounts each fiscal year. Court of Accounts Judge Bassem Wehbe told Executive that after 12 years without a budget, “There’s no longer a closure of accounts as linked to the permission issued by the Parliament to the government in the form of an approved budget, but rather an account in which there is a period where there was revenue and expenditure, and which should be audited. It’s similar to a closure of accounts, but it’s not [the same].” In other words, without a budget there is no way to perform the closure of accounts as outlined legislatively. However, there are still records of what was spent and what revenue was collected, which can be audited. The closure of accounts—an audit that begins in the middle of August—is the point in the preparatory timeline that the proverbial budget train derails every year, and there are both technical and political reasons for why the court has not been auditing public monies (see overview story on why there has not been a budget, and how the government spent money while it was not authorized to do so).

A road map in theory

Theoretically, the Court of Accounts should, by September 1, finish its audit of the preceding year’s finances. By that date, the court would send a report of its work back to the Ministry of Finance, which would then present the closure of accounts result to the cabinet. According to Article 197 of the Public Accounting Law, the cabinet should endorse the audit report of the Court of Accounts before the first of November and forward it on to the Finance and Budget Committee at Parliament for debate, before submitting to the plenary for a vote approving the audit, a constitutional prerequisite (according to article 87) for ratifying the budget.

By September 1, the Council of Ministers should receive both the closure of accounts report and the draft budget from the Ministry of Finance. The cabinet should debate the merits of the proposed budget, adjusting spending and revenue projections to meet its goals and expectations for fiscal performance in the next year. After the cabinet has agreed on the draft budget, it goes to the finance and budget committee at Parliament before the first Tuesday after October 15 for parliamentarians to begin debate. Once the committee agrees on the draft budget, it submits it to the plenary for a last round of oversight. Parliament has until the end of the year, from receiving the draft budget in October until the last day of December to ratify it—although there is a clause, called “the one-twelfth rule,” allocating spending for one month in case the Parliament debate stretches into the next year. Parliament in 2005 made use of this allocation, voting the 2005 draft budget into law on the last day of January 2006. And though the One-Twelfth rule is legally only good for one month, in the absence of a budget for 12 years it was utilized to allow the government to continue spending at 2005 numbers (see story on how this rule works).

Now that Parliament has ratified the 2017 state budget, the question reverberating across Lebanon is whether this signifies the return of fiscal responsibility. That cannot be answered yet, because there is still a chance the law may be challenged in front of the Constitutional Council, which could strike down the new budget (see story on tax law rebuke). But if the 2017 budget law enters into effect upon publication in the Official Gazette, at least at the procedural level, Lebanon should be able to stick to the process as prescribed by law and the constitution going forward.

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Jeremy Arbid

Jeremy is Executive's former economics and policy editor.

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