Lebanon’s public sector wages: A fiscal burden

From costly legacy policies to IMF pressure, the state’s wage bill remains one of the country’s most pressing financial challenges.

In Lebanon, public sector wages extend far beyond monthly salaries. They encompass pensions, end-of-service indemnities and long-standing entitlement schemes that continue to weigh heavily on state finances. The result is a complex and costly system now central to the country’s economic debate.

Understanding Lebanon’s fiscal crisis requires a close examination of the total cost of public sector employment. As Nassib Ghobril, chief economist at Byblos Bank, notes, “public sector wages cannot be analyzed in isolation: they also include pensions and end-of-service payments”.

In other words, the true burden extends well beyond active civil servants to include retirees and indirect beneficiaries.

A long-standing and accelerating drift

Contrary to popular belief, the surge in public sector costs predates the 2019 financial collapse. It reflects a structural trend that had been building for years.

Between 2010 and 2017, the combined cost of wages, pensions and end-of-service benefits rose by 62 per cent, significantly outpacing increases in transfers to Electricité du Liban (+11.4 per cent) and debt servicing costs (+25.7 per cent).

Over that period, the annual bill averaged $4.4bn, including $1.2bn in pension payments alone.

More striking still, pension costs surged by 85 per cent, underscoring the growing weight of retirement obligations on public finances.

2017: the salary scale reform that shifted the trajectory

The introduction of a revised public sector salary scale in 2017 marked a decisive turning point. By 2019, the total cost of public sector employment had climbed to $6.4bn, of which $2.3bn was allocated to pensions and end-of-service benefits equivalent to 36 per cent of the total wage bill.

At the same time, the fiscal deficit widened sharply, rising from $3bn in 2017 to $5.8bn in 2018.

For Ghobril, the reform was largely “political and populist”, enacted ahead of parliamentary elections despite repeated warnings from economic institutions.

Lifetime benefits: a controversial and costly system

At the centre of the debate is Lebanon’s system of lifetime pensions for certain categories of officials, notably former members of parliament.

Under the current framework: MPs serving a single four-year term receive roughly 25–30 per cent of their parliamentary salary, those serving two terms receive higher benefits, and those serving longer may qualify for a lifetime pension.

In some cases, these benefits are transferred to surviving family members after the recipient’s death, occasionally extending across multiple generations. Ghobril points to instances where descendants continue to receive pensions linked to mandates dating back to the 1940s.

2024–2026: persistent pressure despite the crisis

Lebanon’s economic collapse and the sharp depreciation of the Lebanese pound have reduced some expenditures in real terms. However, the underlying structural problem remains unresolved.

In 2024, pensions and end-of-service payments accounted for roughly 7 per cent of total public spending.

Yet the overall burden remains substantial. In the 2026 budget, total public sector wage-related spending is expected to reach 50 per cent of government expenditure, equivalent to around $3bn.

By comparison, the IMF estimates pension and indemnity payments at approximately $600m in 2025, suggesting that wages for active employees still represent the largest share of costs.

A system inflated by hiring and policy choices

Another key driver has been large-scale recruitment into the public sector. Around 31,000 employees were hired under various contractual arrangements prior to the crisis, significantly increasing the long-term wage bill.

Meanwhile, tax increases introduced to finance the 2017 salary scale failed to deliver the expected revenues. Economic activity slowed, and tax receipts remained broadly stable relative to GDP, further exacerbating fiscal imbalances.

In response, the IMF has outlined several reform priorities, including: reducing the size of the public workforce, overhauling the pension system and tightening control over public sector social spending.

The aim is to create fiscal space that would allow for targeted wage increases without further widening the deficit.

Lebanon now faces a difficult paradox. On one hand, public finances remain under severe strain; on the other, civil servants have seen their purchasing power collapse amid the economic crisis.

“In 2018, public sector wages exceeded those in the private sector. Today, everyone is paying the price,” Ghobril observes.

Caught between legacy costs and urgent reform needs, Lebanon must navigate a delicate path: reducing an unsustainable fiscal burden without further weakening an already fragile social fabric.