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### Preface — mission and acknowledgements
- IMF Fiscal Affairs Department (FAD) technical assistance mission on Public Compensation Management visited Beirut, August 25-29.
- Mission led by Mr. Nick Carroll, with Mr. Huy Nguyen (FAD).
- Meetings with Ministry of Finance (led by H.E. Mr. Yassine Jaber) and task force on public sector pay including: Director General of Finance Mr. Georges Maarawi; Director of Budget and Expenditure Control Ms. Carole Abi Khalil; Director of Expenditures Ms. Rania Diab; Ms. Zeina Kassem, Advisor to the Minister of Finance.
- Other meetings: Prime Minister H.E. Nawaf Salam; Deputy Prime Minister H.E. Mr. Tarek Mitri; Ministers H.E Mr. Amer Bsat, H.E. Mr. Fadi Makki, H.E. Mr Kamal Shehadi, H.E. Ms. Haneen Sayed; Ministry of Public Health (H.E. Dr. Rakan Nassereldine); Ministry of Education and Higher Education (H.E. Ms. Rima Karameh); Ministry for Interior (Brigadier General Ahmad Al Hajjar); Banque du Liban; Lebanese Armed Forces; Civil Service Board; ILO; World Bank.
- IMF Resident Representative Mr. Frederico Lima, local economist Ms. Rita El Achkar, and administrative support from Yara Vásquez acknowledged.

### Executive summary — key findings
- Overlapping shocks between 2019 and 2025 (Beirut port explosion, financial crisis, COVID-19, regional security developments) triggered a collapse of the Lebanese pound and eroded the value of public sector pay.
- Fragmentation of public compensation undermined service delivery; government enacted stopgap adjustments producing a fragmented compensation structure.
- Report scopes available data and presents an illustrative baseline and scenarios for reform to support a medium-term wage bill management agenda.
- Large 2025 adjustments to pension benefits, expanded military and security spending, and a higher minimum wage for commercial public institutions limit space for across‑the‑board real wage increases without new revenue or savings.
- Under a benign baseline scenario:
  - Total personnel spending increases from US$2.7b in 2025 to US$3.4b in 2029.
  - Employee compensation grows at seven percent real annual growth.
  - By 2029, projected real compensation of employees is 45 percent (of pre-crisis level) and pensions 23 percent (of pre-crisis level), both remaining below pre-crisis levels.
- Upside risks: larger real wage/salary increases, significant workforce expansions, pension increases exceeding baseline.
- Downside macro scenario: reduced capacity to absorb extra personnel costs; may force cuts, postponements, or new measures.
- Follow-up recommended: detailed sectoral assessments (education, pensions, military and security, social benefits and allowances).

### Background and macro-fiscal context
- Pre-crisis government revenue ≈ 20 percent of GDP; government expenditure between 25 to 30 percent of GDP.
- Inflation rose from around 3 percent in 2019 to over 221 percent in 2023.
- Government revenue and expenditure collapsed in real terms, reaching less than one-third of pre-crisis levels in 2022; by 2024, revenue and expenditure recovered somewhat to 16 percent and 15 percent of GDP, respectively (from around 10 percent in 2021).
- World Bank estimates of war-related damages:
  - Total war-related damages: approximately US$11 billion.
  - Direct physical damage: about US$6.8 billion.
  - Economic losses: about US$7.2 billion.
  - These represent roughly 40 percent and 25 percent of 2024 GDP, respectively.
- Real revenue and expenditure expected to remain well below 2018 levels in 2025:
  - Real revenue expected to reach 43 percent of its 2018 level by 2025.
  - Real expenditure expected to reach 26 percent of its 2018 level by 2025.
- Real GDP forecast for 2025: LBP 59,577 billion, representing 70 percent of its 2018 level.

### Personnel spending, employment, and pay trends (2019–2025)
- In 2024, personnel spending (including pensions) accounted for 48 percent of total current primary government spending.
- Real personnel expenditure was only a fifth of its 2018 level in both 2021 and 2023.
- Ad hoc increases in monthly allowances for military, civilian personnel, and pensioners were implemented; many adjustments were not integrated into base salary.
- Real pay developments:
  - Average real income per civilian employee: US$1886 per month in 2019; US$287 in 2022; US$551 in 2024; projected to increase further in 2025.
- Employment trends:
  - Civilian employees declined from 41,000 in 2019 to 30,000 in 2025.
  - Full-time teachers decreased from about 25,000 to about 16,000 in 2025.
  - Military and security employment remained near pre-crisis levels.
- By 2025, real personnel expenditure projected to reach slightly above one-third of the pre-crisis level.

### Effects of the decline in real personnel spending
- Real personnel spending declined to roughly one third of its 2018 level, producing:
  - Frequent public sector strikes disrupting courts, schools, and issuance of identity documents.
  - Challenging staff retention with skilled and senior staff leaving for higher pay in private sector or overseas.
  - Compounded loss of skills due to a de-facto hiring freeze.

### Recent nominal increases and composition (2019–2025)
- Personnel spending increased significantly in nominal terms in 2024 and 2025, driven by large increases in social benefits and temporary/ad-hoc compensation.
- Major measures contributing to 2025 increase:
  - Integration of education salary payments into the official budget.
  - Introduction of a LBP 14 million monthly payment for active military personnel.
  - Introduction of a LBP 12 million monthly payment for pensioners.
  - Increased transfers to public institutions to cover wage costs.
- Historical US$ comparisons:
  - Total personnel spending: US$6.4b in 2019 vs US$2.7b in 2025.
  - Spending on salaries, wages and benefits: US$3.8b in 2019 vs US$1.6b in 2025.

### Real spending, concentration, and education sector performance
- In 2025:
  - Central government compensation accounted for 6.8 percent of GDP.
  - Compensation spending amounted to about one third of government revenues.
- Concentration:
  - Central government employs around 183,000 people.
  - Allocates LBP 114,000 billion for salaries and wages, plus LBP 57,000 billion in social benefits, totaling 6.8 percent of GDP in 2025.
  - Military and security: approximately 120,000 employees receiving nearly two‑thirds of total remuneration budget.
  - Contractual education workers: around 33,000, accounting for 10 percent of compensation.
  - Civil service (permanent): about 30,000 total (16,000 in education ministry; 15,000 in other ministries).
- Education sector:
  - Employment: approximately 49,000 people (general education, higher education and TVET), excludes national Lebanese university employment.
  - Student-teacher ratios: Primary STR: 13:1 (vs 15:1 OECD average); Secondary STR: 6:1 (vs 13:1 OECD average).
  - Average student score: just above 350 (OECD average about 480; Jordan mean score exceeds 400).
  - Lebanon exhibits the highest standard deviation among assessed countries, indicating large disparities in student achievement.
  - Conclusion: Significant scope to improve efficiency in education despite low STRs and poor learning outcomes.

### Allowances, fragmentation, and workforce inequities
- Crisis-era adjustments were allowances, temporary decrees, bonuses, and ad hoc compensation rather than base pay increases.
  - Prior to the crises, over 90 percent of public compensation was basic salaries; post-crisis the share of allowances in total remuneration has risen to over 90 percent.
  - Allowance-based payments did not carry over into retirement benefits, failed to keep up with hyperinflation, and deepened disparities.
- Fragmented pay adjustments and weak institutional coordination produced large disparities across employee groups (e.g., judges with high multipliers, generous allowances, and preferential exchange rates).
- Labor market effects and morale:
  - Many civil servants and military personnel reduced working hours or took secondary employment; anecdotal evidence suggests a significant share now works part‑time while drawing income from private or informal sectors.
- Public-sector minimum wages:
  - Official public-sector minimum wage: LBP 675,000 (now worth about US$7.50).
  - Private sector minimum wage (most recent increase July 2025): LBP 28,000,000 (approximately US$285.00).

### Baseline framing and key assumptions (2025–2029)
- Baseline is a benign and relatively optimistic scenario; assumes an IMF program will begin in late 2025.
- Verbatim key baseline assumptions:
  - Nominal GDP growth is assumed to vary between 7.5 percent and 12.4 percent of GDP.
  - Inflation between 4.7 percent and 8.5 percent of GDP.
  - Personnel spending rises from LBP 239,000 billion in 2025 to LBP 374,000 billion in 2029 (or from 8.2 percent of GDP to 9.0 percent of GDP from 2027–29).
  - Personnel spending projected to settle at about 9 percent of GDP by 2029, assuming an IMF program is put in place (with no additional policy changes beyond those in the IMF program).
  - Nominal Personnel Expenditure projected: LBP 88,000 billion in 2023 (4.3 percent of GDP) → LBP 239,000 billion by 2025 (8.2 percent of GDP) → LBP 373,000 billion by 2029 (9 percent of GDP).
  - In real terms compared to 2019 values: Personnel expenditures recovered to 35 percent of pre-crisis levels by 2025 and increase to 43 percent by 2029.
- Detailed baseline growth assumptions:
  - Compensation (salaries, wages, and social benefits) grows in real terms by 7.2 percent annually between 2025 and 2029.
  - Transfers to Public Institutions remain fixed in nominal terms starting from 2025.
  - Pensions and End of Service indemnities (EOSI) rise by 1.5 percent per year above inflation.
  - Under baseline, nominal spending on personnel rises from LBP 239,000 billion in 2025 to LBP 374,000 billion in 2029.

### Component-level recovery by 2029 (relative to 2019)
- Military and Security personnel compensation (excluding social benefits): about 42 percent of its 2019 real value.
- Education-sector personnel spending: about 47 percent of its 2019 level.
- Social benefits: approximately 95‑96 percent of their 2019 real value.
- Overall personnel expenditures: 43 percent of 2019 level by 2029.

### Employment and real wage trade-offs (2025–2029)
- If employment is fixed between 2025-29, real wages per person can increase by about a third (32 percent over those four years).
- If employment rises by 10 percent (12,000 military staff and 6,000 Civilian staff), the per-person increase in real wages, salaries and benefits per person would only rise by 20 percent.
- Second draft of the 2026 Budget law (published October 2025) includes:
  - an additional 21,000 billion LBP on salaries, wages and associated benefits (article 13),
  - an additional 17,000 billion LBP on Social Benefits and Pensions,
  reflecting a more than 10 percent increase in budget spending on personnel in 2026.
- Baseline projected shares in 2029:
  - total spending on salaries, allowances and benefits remains at 55 percent of pre-crisis levels,
  - remuneration excluding social benefits at 45 percent of pre-crisis levels.
- Civil Service Board Indexation proposal example: includes a 76.6 percent increase.

### Modeled scenarios (baseline + five alternatives) — fiscal impacts (percent of GDP differences)
- Baseline: illustrative baseline with 7 percent growth in Compensation of Employees and Benefits from 2025-2029.
- Scenario A: One-time 10 percent additional increase in wages and salaries in 2026.
  - Fiscal impact: increases the wage bill by 0.4 percentage points of GDP above the baseline from 2027 onward.
  - Scenario A (difference in percent of GDP): 2026–2029: 0.4, 0.4, 0.4, 0.4.
- Scenario B: Implements Civil Service Board’s Indexation proposal (real spending back to 76.6 percent of pre-crisis).
  - Fiscal impact: spending would jump by 1.6 percentage points of GDP above baseline in 2026 and rises to 2.9 percentage points by 2029.
  - Scenario B (difference in percent of GDP): 2026–2029: 1.6, 1.8, 2.4, 2.9.
- Scenario C: Additional 5 percent growth per year in pension spending between 2027 and 2029.
  - Fiscal impact: total spending would grow to 0.7 percentage points of GDP above baseline by 2029.
  - Scenario C (difference in percent of GDP): 2026–2029: 0.0, 0.3, 0.5, 0.7.
- Scenario D: Reduction of total government employment by 3400 staff over 4 years (5 percent reduction in civil service and education workforce).
  - Fiscal impact: by 2029, total spending projected about 0.2 percentage points of GDP lower than baseline.
  - Scenario D (difference in percent of GDP): 2026–2029: 0.0, -0.1, -0.2, -0.2.
- Scenario E: Social benefit spending fixed in nominal terms.
  - Fiscal impact: by 2029, spending would fall by 0.6 percentage points of GDP below baseline.
  - Scenario E (difference in percent of GDP): 2026–2029: 0.0, -0.3, -0.5, -0.6.

### Downside economic scenario
- Downside assumption: inflation follows baseline but real GDP growth averages 2 percent per year during 2026-2029.
- Under downside scenario, real spending on compensation grows by 10 percent over the four-year period, compared to a 32 percent increase under the baseline.
- Recommendation: avoid committing to higher future spending until economic growth and government revenues are more certain.

### Fiscal space limits and recovery by 2029
- Fiscal space limits under baseline:
  - very limited fiscal space for raising salaries and wages beyond a real growth rate of 6.5 percent per year,
  - nominal spending on personnel would not rise by more than 10-15 percent per year over 2025-29,
  - translates into real increases in total personnel spending of 5.6 percent annually and real spending on salaries and wages of 7.2 percent (including accommodation for draft 2 of the 2026 Budget Law).
- Recovery by 2029 under baseline:
  - real spending on salaries and wages recover to around 43 percent of pre-crisis levels by 2029,
  - pension benefits recover to 23 percent of their pre-crisis levels by 2029.
- Real income per public employee (including security sector) projected to increase from approximately 11,656,000 Lebanese pounds in 2025 to around 15,257,000 Lebanese pounds by 2029.

### Policy directions and recommendations
- Develop a medium-term envelope for personnel spending consistent with sustainable public finances; require multi-year cost estimates for each policy proposal.
- Improve compensation structure:
  - Concentrate compensation in basic salaries, use allowances and benefits only to reflect specific circumstances.
  - Hold nominal level of allowances fixed for an extended time to re-align compensation toward base pay.
- Address fragmentation and weak coordination by moving toward unified wage-bargaining frameworks to reduce inequities.
- Combine targeted savings with possible revenue measures:
  - reduce lower-priority or redundant employment,
  - implement parametric pension reform (e.g., accrual rates for military pension benefits),
  - slow growth in allowances and social benefits relative to base salaries.
- Strengthen inter-ministerial collaboration to make top-down spending allocation decisions with sectoral engagement to avoid blunt across‑the‑board cuts.
- Conduct functional reviews to map services, identify overlaps, consider outsourcing, shared services, and digital channels.
- Allow policy flexibility for downside scenarios: stress-test personnel spending projections and calibrate annual nominal spending growth to actual economic performance.
- Consider indexation frameworks or independent pay review bodies (examples cited).
- Modernize public sector performance management: links between performance and compensation, performance-based incentives, career development pathways.
- Strengthen data collection and monitoring systems to track personnel expenditures, wage trends, and workforce composition.

### Data, methodology, and recommended next steps
- Analysis is high-level (top-down) with limitations due to dynamic policy environment and large payroll policy changes.
- Reliable published data on government personnel largely unavailable since 2019; analysis uses multiple assumptions and data sources provided by authorities.
- Improving quality, timeliness, and completeness of personnel-level data should be a priority.
- Detailed modelling using anonymized individual payroll data would enable calculation of a ‘wage drift’ term and permit modeling of scenarios such as non-replacement of job exits, reducing hiring by 50 percent, grand-parenting provisions, and sectoral analysis.
- Future follow-up: more detailed sectoral assessments (education, military and security, social benefits and allowances) to identify savings and provide fine-grained recommendations.

### Estimation approach and key nominal LBP projections (baseline)
- Personnel cost (nominal LBP):
  - 2025: 239,289
  - 2026: 278,232
  - 2027: 319,457
  - 2028: 347,660
  - 2029: 373,724
- Total salaries, wages, and social benefits (nominal LBP):
  - 2025: 170,955
  - 2026: 201,692
  - 2027: 236,873
  - 2028: 261,752
  - 2029: 284,326
- Compensation of Employees (nominal LBP):
  - 2025: 113,655
  - 2026: 132,786
  - 2027: 155,948
  - 2028: 172,327
  - 2029: 187,188
- Military and Security (nominal LBP):
  - 2025: 68,972
  - 2026: 79,052
  - 2027: 92,841
  - 2028: 102,592
  - 2029: 111,440
- Civil Service (nominal LBP):
  - 2025: 35,426
  - 2026: 42,602
  - 2027: 50,033
  - 2028: 55,288
  - 2029: 60,056
  - Education (nominal LBP): 2025: 22,379; 2026: 26,912; 2027: 31,607; 2028: 34,926; 2029: 37,938
  - Other departments (nominal LBP): 2025: 13,047; 2026: 15,690; 2027: 18,426; 2028: 20,362; 2029: 22,118
- Residual / Other (nominal LBP):
  - Residual: 2025: 9,257; 2026: 11,132; 2027: 13,073; 2028: 14,446; 2029: 15,692
  - Other: 2025: 9,257; 2026: 11,132; 2027: 13,073; 2028: 14,446; 2029: 15,692
- Social benefits (nominal LBP):
  - 2025: 57,300
  - 2026: 68,906
  - 2027: 80,926
  - 2028: 89,425
  - 2029: 97,137
- Transfer for PI wages (nominal LBP):
  - 2025: 13,389
  - 2026: 16,101
  - 2027: 16,101
  - 2028: 16,101
  - 2029: 16,101
- Pension and EOSI (nominal LBP):
  - 2025: 54,945
  - 2026: 60,439
  - 2027: 66,483
  - 2028: 69,807
  - 2029: 73,298

### Key statistics (baseline) — Billion US$
- Personnel cost:
  - 2025: 2.7
  - 2026: 3.0
  - 2027: 3.2
  - 2028: 3.4
  - 2029: 3.4
- Total salaries, wages, and social benefits:
  - 2025: 1.9
  - 2026: 2.1
  - 2027: 2.4
  - 2028: 2.5
  - 2029: 2.6
- Compensation of Employees:
  - 2025: 1.3
  - 2026: 1.4
  - 2027: 1.6
  - 2028: 1.7
  - 2029: 1.7
- Military and Security:
  - 2025: 0.8
  - 2026: 0.8
  - 2027: 0.9
  - 2028: 1.0
  - 2029: 1.0
- Civil Service (of which):
  - 2025: 0.4
  - 2026: 0.5
  - 2027: 0.5
  - 2028: 0.5
  - 2029: 0.6
  - Education:
    - 2025: 0.3
    - 2026: 0.3
    - 2027: 0.3
    - 2028: 0.3
    - 2029: 0.3
  - Other departments:
    - 2025: 0.1
    - 2026: 0.2
    - 2027: 0.2
    - 2028: 0.2
    - 2029: 0.2
- Social benefits:
  - 2025: 0.6
  - 2026: 0.7
  - 2027: 0.8
  - 2028: 0.9
  - 2029: 0.9
- Transfer for PI wages:
  - 2025: 0.1
  - 2026: 0.2
  - 2027: 0.2
  - 2028: 0.2
  - 2029: 0.1
- Pension and EOSI:
  - 2025: 0.6
  - 2026: 0.6
  - 2027: 0.7
  - 2028: 0.7
  - 2029: 0.7

*Source: IMF Technical Assistance Report (Preface, Executive Summary, mission materials and staff estimates; Annex).*

### Preface ................................................................................................................

### Preface

### Mission and acknowledgements
- IMF Fiscal Affairs Department (FAD) technical assistance mission on Public Compensation Management visited Beirut, August 25-29.
- Mission led by Mr. Nick Carroll, with Mr. Huy Nguyen (FAD).
- Mission held meetings with the Ministry of Finance (led by H.E. Mr. Yassine Jaber) and the task force on public sector pay, including Director General of Finance Mr. Georges Maarawi; Director of Budget and Expenditure Control Ms. Carole Abi Khalil; Director of Expenditures Ms. Rania Diab; and Ms. Zeina Kassem, Advisor to the Minister of Finance.
- Meetings also included the Prime Minister H.E. Nawaf Salam; Deputy Prime Minister H.E. Mr. Tarek Mitri; Ministers H.E Mr. Amer Bsat, H.E. Mr. Fadi Makki, H.E. Mr Kamal Shehadi, H.E. Ms. Haneen Sayed; Ministry of Public Health (H.E. Dr. Rakan Nassereldine); Ministry of Education and Higher Education (H.E. Ms. Rima Karameh); Ministry for Interior (Brigadier General Ahmad Al Hajjar); Banque du Liban; Lebanese Armed Forces; Civil Service Board; ILO; and World Bank.
- IMF Resident Representative Mr. Frederico Lima, local economist Ms. Rita El Achkar, and administrative support from Yara Vásquez acknowledged.

### Executive summary — key findings
- Lebanon experienced overlapping shocks (Beirut port explosion, financial crisis, COVID-19, regional security developments) between 2019 and 2025 that triggered a collapse of the Lebanese pound and eroded the value of public sector pay.
- Resulting fragmentation of public compensation undermines delivery of public services; government enacted stopgap adjustments to remuneration, producing a fragmented compensation structure.
- The report scopes available data and presents an illustrative baseline and scenarios for reform to support a medium-term wage bill management agenda.
- Large 2025 adjustments to pension benefits and expanded military and security spending, plus a higher minimum wage for commercial public institutions, limit space for across-the-board real wage increases without new revenue or savings.
- Under a benign baseline scenario:
  - Total personnel spending increases from US$2.7b in 2025 to US$3.4b in 2029.
  - Employee compensation grows at seven percent real annual growth.
  - By 2029, projected real compensation of employees is 45 percent (of pre-crisis level) and pensions 23 percent (of pre-crisis level), both remaining below pre-crisis levels.
- Upside spending risks relative to baseline include larger real wage and salary increases, significant workforce expansions, and pension increases exceeding the baseline’s modest real adjustments.
- A downside macroeconomic scenario would reduce capacity to absorb extra personnel costs and could force cuts, postponements, or new measures.
- Follow-up analysis recommended: detailed sectoral assessments (education, pensions, military and security, social benefits and allowances) to identify savings and avoid blunt across-the-board cuts.

### Executive Summary Table (illustrative baseline, from staff estimates)
- Note: Estimates based on data in draft 1 of the 2026 Budget Law. EOSI refers to End of Service Indemnities (EOSI).
- 2019 / 2025 / 2026 / 2027 / 2028 / 2029 — Total Personnel Spending (Billions of US$):
  - 2019: 6.4
  - 2025: 2.7
  - 2026: 3.0
  - 2027: 3.2
  - 2028: 3.4
  - 2029: 3.4
- Compensation of Employees (Billions of US$):
  - 2019: 3.1
  - 2025: 1.3
  - 2026: 1.4
  - 2027: 1.6
  - 2028: 1.7
  - 2029: 1.7
  - of which Military and Security (Billions of US$):
    - 2019: 2.0
    - 2025: 0.8
    - 2026: 0.8
    - 2027: 0.9
    - 2028: 1.0
    - 2029: 1.0
- Social Benefits (Billions of US$):
  - 2019: 0.8
  - 2025: 0.6
  - 2026: 0.7
  - 2027: 0.8
  - 2028: 0.9
  - 2029: 0.9
- Transfers to Public Institutions for Personnel (Billions of US$):
  - 2019: 0.3
  - 2025: 0.1
  - 2026: 0.2
  - 2027: 0.2
  - 2028: 0.2
  - 2029: 0.1
- Pensions and EOSI (Billions of US$):
  - 2019: 2.3
  - 2025: 0.6
  - 2026: 0.6
  - 2027: 0.7
  - 2028: 0.7
  - 2029: 0.7

### Background and issues — macro and fiscal context
- Pre-crisis (before 2020) government revenue ≈ 20 percent of GDP; government expenditure between 25 to 30 percent of GDP.
- Inflation rose from around 3 percent in 2019 to over 221 percent in 2023.
- Government revenue and expenditure collapsed in real terms, reaching less than one-third of pre-crisis levels in 2022; by 2024, revenue and expenditure recovered somewhat to 16 percent and 15 percent of GDP, respectively (from around 10 percent in 2021).
- World Bank estimates of war-related damages:
  - Total war-related damages: approximately US$11 billion.
  - Direct physical damage: about US$6.8 billion.
  - Economic losses: about US$7.2 billion.
  - These represent roughly 40 percent and 25 percent of 2024 GDP, respectively.
- Real revenue and expenditure are expected to remain well below their 2018 levels in 2025:
  - Real revenue expected to reach 43 percent of its 2018 level by 2025.
  - Real expenditure expected to reach 26 percent of its 2018 level by 2025.
- Real GDP forecast for 2025: LBP 59,577 billion, representing 70 percent of its 2018 level.

### Personnel spending, employment, and pay trends
- In 2024, personnel spending (including pensions) accounted for 48 percent of total current primary government spending.
- Real personnel expenditure was only a fifth of its 2018 level in both 2021 and 2023.
- Government implemented ad hoc increases in monthly allowances for military, civilian personnel, and pensioners; many adjustments were not integrated into base salary.
- Real pay developments:
  - Average real income per civilian employee: US$1886 per month in 2019; US$287 in 2022 (low); US$551 in 2024; projected to increase further in 2025.
- Employment trends:
  - Civilian employees declined from 41,000 in 2019 to 30,000 in 2025 (reduction of roughly 26 percent).
  - Full-time teachers decreased from about 25,000 to about 16,000 in 2025.
  - Military and security employment remained near pre-crisis levels.
- By 2025, real personnel expenditure projected to reach slightly above one-third of the pre-crisis level.

### Data limits, methodology, and next steps
- Analysis is a high-level (top-down) assessment and has limitations due to a dynamic policy environment and large payroll policy changes.
- Macro scenario presented is optimistic (benign), for example assuming the presence of an IMF program at the start of the baseline period.
- Reliable published data on government personnel largely unavailable since 2019; analysis draws on multiple assumptions and data sources provided by authorities.
- Improving the quality, timeliness, and completeness of personnel-level data should be a priority.
- Recommended follow-up: more detailed sectoral assessments (education, pensions, military and security, social benefits and allowances) to identify savings and enable precise policy recommendations.

### Policy directions and opportunity
- Opportunity to chart a fiscally sustainable, equitable medium-term path for personnel spending by:
  - Fixing salary scales.
  - Ensuring parity with inflation and exchange rate realities.
  - Integrating allowances into base pay in a transparent way.
  - Charting a new wage policy and salary structure to restore coherence and equity to the fragmented system.

*Source: IMF Technical Assistance Report (Preface and Executive Summary, mission materials and staff estimates).*

### 10.        The decline of real personnel spending to roughly one third of its 2018 level has had

### The decline of real personnel spending to roughly one third of its 2018 level has had

### Effects of the decline in real personnel spending
- Real personnel spending declined to roughly one third of its 2018 level, producing:
  - Frequent public sector strikes disrupting courts, schools, and issuance of identity documents.
  - Challenging staff retention with many skilled and senior staff leaving for higher pay in the private sector or opportunities overseas.
  - Compounded loss of skills due to a de-facto hiring freeze.

### Recent nominal increases and composition (2019–2025)
- Personnel spending increased significantly in nominal terms in 2024 and 2025, driven by large increases in:
  - Social benefits.
  - Temporary / ad-hoc compensation for employees.
- Major measures contributing to the 2025 increase:
  - Integration of education salary payments into the official budget (replacing former grant funding and treasury advances).
  - Introduction of a LBP 14 million monthly payment for active military personnel.
  - Introduction of a LBP 12 million monthly payment for pensioners.
  - Increased transfers to public institutions to cover wage costs.
- Historical US$ comparisons:
  - Total personnel spending: US$6.4b in 2019 vs an estimated US$2.7b in 2025.
  - Spending on salaries, wages and benefits: US$3.8b in 2019 vs US$1.6b in 2025.

### Real spending, international comparisons, and concentration
- Real spending in all personnel categories remains below pre-crisis levels; adjusted for inflation, wages and salaries partially recovered during 2023–25 but remain well below pre-crisis levels.
- In 2025:
  - Central government compensation accounted for 6.8 percent of GDP.
  - Compensation spending amounted to about one third of government revenues.
  - Note: Social benefits are included for Lebanon whereas they may not be for other countries (potentially over-estimating Lebanon’s comparative level).
- Concentration of spending:
  - Central government employs around 183,000 people.
  - Allocates LBP 114,000 billion for salaries and wages, plus LBP 57,000 billion in social benefits, totaling 6.8 percent of GDP in 2025.
  - Military and security: approximately 120,000 employees receiving nearly two‑thirds of the total remuneration budget.
  - Contractual (non‑permanent) education workers: around 33,000, accounting for 10 percent of compensation.
  - Civil service (permanent administration): about 30,000 total (16,000 in the education ministry; 15,000 in other ministries and departments).

### Education sector performance and scope for efficiency gains
- Education sector employment:
  - Approximately 49,000 people (general education, higher education and TVET); excludes national Lebanese university employment.
- Student-teacher ratios (STRs) and learning outcomes:
  - Primary STR: 13:1 (vs 15:1 OECD average).
  - Secondary STR: 6:1 (vs 13:1 OECD average).
  - Average student score: just above 350 (OECD average about 480; Jordan mean score exceeds 400).
  - Lebanon exhibits the highest standard deviation among assessed countries, indicating large disparities in student achievement.
- Conclusion: Significant scope to improve efficiency in the education sector despite low STRs and poor learning outcomes.

### Allowances, fragmentation, and workforce inequities
- Crisis-era remuneration adjustments took the form of allowances, temporary decrees, bonuses, and ad hoc compensation rather than base pay increases.
  - Prior to the crises, over 90 percent of public compensation was basic salaries; post-crisis the share of allowances in total remuneration has risen to over 90 percent.
  - These allowance-based payments did not carry over into retirement benefits, failed to keep up with hyperinflation, and deepened disparities.
- Fragmented pay adjustments and weak institutional coordination:
  - No unified wage‑bargaining framework led to fragmented public sector compensation and large disparities between employee groups (e.g., judges with high multipliers, generous allowances, and preferential exchange rates).
  - Recent alignment of certain salaries with market rates increased gaps between high‑paid positions and other civil servants of the same grade.
- Labor market effects and morale:
  - Many civil servants and military personnel reduced working hours or took secondary employment; anecdotal evidence suggests a significant share now works part‑time while drawing income from private or informal sectors.
- Public sector wage scales and minimum wages:
  - Official public-sector minimum wage: LBP 675,000 (now worth about US$7.50).
  - Private sector minimum wage (most recent increase July 2025): LBP 28,000,000 (approximately US$285.00).

### Baseline, scenarios, and illustrative projections (2025–2029)
- Baseline framing:
  - A benign and relatively optimistic scenario for nominal GDP, inflation, and government revenue is developed.
  - Baseline assumes an IMF program will begin in late 2025 including the grants and loans that typically accompany the program.
  - The baseline is intended to anchor medium-term fiscal planning and account for: (1) underlying employment pressures; (2) wage pressures; (3) increased pressure from pensions.
- Key baseline assumptions (verbatim phrasing preserved where in source):
  - Nominal GDP growth is assumed to vary between 7.5 percent and 12.4 percent of GDP.
  - Inflation between 4.7 percent and 8.5 percent of GDP.
  - Personnel spending rises from LBP 239,000 billion in 2025 to LBP 374,000 billion in 2029 (or from 8.2 percent of GDP to 9.0 percent of GDP from 2027–29).
  - Personnel spending is projected to settle at about 9 percent of GDP by 2029, assuming an IMF program is put in place (with no additional policy changes beyond those in the IMF program).
  - Nominal Personnel Expenditure is projected: LBP 88,000 billion in 2023 (4.3 percent of GDP) → LBP 239,000 billion by 2025 (8.2 percent of GDP) → LBP 373,000 billion by 2029 (9 percent of GDP).
  - In real terms (inflation-adjusted) compared to 2019 values:
    - Personnel expenditures recovered to 35 percent of pre-crisis levels by 2025.
    - Personnel expenditures increase to 43 percent of pre-crisis levels by 2029.
- Detailed baseline projections and growth assumptions:
  - Compensation (salaries, wages, and social benefits) grows in real terms by 7.2 percent annually between 2025 and 2029.
  - Transfers to Public Institutions remain fixed in nominal terms starting from 2025.
  - Pensions and End of Service indemnities (EOSI) rise by 1.5 percent per year above inflation.
  - Under the baseline, nominal spending on personnel would rise from LBP 239,000 billion in 2025 to LBP 374,000 billion in 2029.
  - In inflation adjusted terms, personnel spending returns to 43 percent of its 2019 level by 2029.
- Component-level real recovery by 2029 (relative to 2019):
  - Military and Security personnel compensation (excluding social benefits): about 42 percent of its 2019 real value.
  - Education-sector personnel spending: about 47 percent of its 2019 level.
  - Social benefits: approximately 95‑96 percent of their 2019 real value.

### Policy directions and reform signals from the report
- Develop a well-structured baseline that accounts for employment pressures, wage pressures, and pension pressures to support medium-term fiscal planning.
- Improve compensation structure:
  - Good practice recommended: concentrate compensation in basic salaries, with allowances and benefits used only to reflect specific circumstances.
  - Suggested mechanism: hold the nominal level of allowances fixed for an extended time to re-align compensation toward base pay.
- Address fragmented pay adjustments and weak institutional coordination by moving toward more unified wage-bargaining frameworks to reduce inequities across workforces.
- Seek efficiency gains in the education sector given low STRs but poor learning outcomes.

*IMF staff calculations based on data provided by the authorities, PFM tables and other sources (see Annex).*

### 25.        There will be less room to increase real wages and salaries if government employment

### 25.        There will be less room to increase real wages and salaries if government employment continues to expand significantly in 2025-2029.

### Employment and real wage trade-offs
- If employment is fixed between 2025-29, real wages per person can increase by about a third (32 percent over those four years).
- If employment rises by 10 percent (12,000 military staff and 6,000 Civilian staff), then the per-person increase in real wages, salaries and benefits per person would only rise by 20 percent.
- The second draft of the 2026 Budget law (published October 2025) includes:
  - an additional 21,000 billion LBP on salaries, wages and associated benefits (article 13), and
  - an additional 17,000 billion LBP on Social Benefits and Pensions,
  reflecting a more than 10 percent increase in budget spending on personnel in 2026.
- Updated baseline and scenario forecasts would therefore have less room available for additional spending in 2027-2030.

### Baseline assumptions and spending pressures
- Baseline assumptions:
  - controlled personnel spending with modest real wage growth,
  - pension spending growing at 1.5 percent above inflation annually,
  - limited employment expansion.
- Baseline projected shares in 2029:
  - total spending on salaries, allowances and benefits remains at 55 percent of pre-crisis levels,
  - remuneration excluding social benefits at 45 percent of pre-crisis levels.
- Civil Service Board Indexation proposal example: includes a 76.6 percent increase.
- Policy options to create fiscal space include:
  - reducing low priority or redundant employment,
  - capping nominal allowances and benefits to gradually shift compensation into base salaries (e.g., allow wages and salaries to grow with inflation and not adjust nominal allowance).

### Modeled scenarios (baseline + five alternatives)
- Baseline: illustrative baseline with 7 percent growth in Compensation of Employees and Benefits from 2025-2029.
- Scenario A: A one-time 10 percent additional increase in wages and salaries of civil servants and military and security personnel (including educational workers) over baseline growth in 2026.
  - Fiscal impact: increases the wage bill by 0.4 percentage points of GDP above the baseline from 2027 onward.
- Scenario B: Implements the Civil Service Board’s Indexation proposal (raising government employees’ wages to 46 times their pre-crisis levels, bringing real spending back to 76.6 percent of the pre-crisis amount).
  - Fiscal impact: spending would jump by 1.6 percentage points of GDP above the baseline in 2026 and gradually rises to 2.9 percentage points by 2029.
- Scenario C: An additional 5 percent growth per year in pension spending between 2027 and 2029.
  - Fiscal impact: total spending would grow steadily to 0.7 percentage points of GDP above the baseline by 2029.
- Scenario D: A reduction of total government employment by 3400 staff over the 4 years (or a 5 percent reduction in 2025 levels in the civil service and education workforce), concentrated in the education sector.
  - Fiscal impact: by 2029, total spending is projected to be about 0.2 percentage points of GDP lower than under the baseline.
- Scenario E: Social benefit spending is fixed in nominal terms (no increase for inflation or real growth).
  - Fiscal impact: by 2029, spending under this scenario would fall by 0.6 percentage points of GDP below the baseline.

### Downside economic scenario
- Downside assumption: inflation follows the baseline but real GDP growth averages 2 percent per year during 2026-2029.
- Under this downside scenario, real spending on compensation grows by 10 percent over the four-year period, compared to a 32 percent increase under the baseline.
- This wide variation underscores the recommendation that decisionmakers avoid committing to higher future spending until economic growth and government revenues are more certain and revenue increase.

### Key numerical projections (selected)
- Baseline nominal growth in Compensation of Employees and Benefits: 2025: 8.2; 2026: 8.5; 2027: 9.0; 2028: 9.0; 2029: 9.0 (values shown in table).
- Scenario A (difference in percent of GDP): 2026–2029: 0.4, 0.4, 0.4, 0.4.
- Scenario B (difference in percent of GDP): 2026–2029: 1.6, 1.8, 2.4, 2.9.
- Scenario C (difference in percent of GDP): 2026–2029: 0.0, 0.3, 0.5, 0.7.
- Scenario D (difference in percent of GDP): 2026–2029: 0.0, -0.1, -0.2, -0.2.
- Scenario E (difference in percent of GDP): 2026–2029: 0.0, -0.3, -0.5, -0.6.
- Fiscal space limits under baseline:
  - very limited fiscal space for raising salaries and wages beyond a real growth rate of 6.5 percent per year,
  - nominal spending on personnel would not rise by more than 10-15 percent per year over 2025-29,
  - translates into real increases in total personnel spending of 5.6 percent annually and real spending on salaries and wages of 7.2 percent (including accommodation for draft 2 of the 2026 Budget Law).
- Recovery by 2029 under baseline:
  - real spending on salaries and wages recover to around 43 percent of pre-crisis levels by 2029,
  - pension benefits recover to 23 percent of their pre-crisis levels by 2029.
- Real income per public employee (including security sector) projected to increase from approximately 11,656,000 Lebanese pounds in 2025 to around 15,257,000 Lebanese pounds by 2029.

### Policy directions and recommendations
- Develop a medium-term envelope for personnel spending consistent with sustainable public finances.
  - Assess spending decisions on employment, pensions, social benefits and allowances within a clear medium-term fiscal envelope that aligns with fiscal sustainability and equitable treatment across sectors.
  - Require multi-year cost estimates for each policy proposal showing how much fiscal space it would consume.
- Combine targeted savings with possible revenue measures:
  - reduce lower-priority employment (noting potential and trade-offs of education sector reductions),
  - implement parametric pension reform (e.g., accrual rates for military pension benefits),
  - slow growth in allowances and social benefits relative to base salaries,
  - draw on work by the World Bank and the Civil Service Board on parametric pension reform.
- Strengthen inter-ministerial collaboration to make top-down spending allocation decisions with sectoral engagement to avoid blunt across-the-board cuts.
- Conduct functional reviews to:
  - map services and delivery options,
  - identify wasted resources, overlaps, and restructuring opportunities,
  - consider delivery methods (outsourcing, shared services, digital channels) that offer best value.
- Allow policy flexibility for downside scenarios:
  - stress-test personnel spending projections under conservative economic and revenue scenarios,
  - avoid undue commitment to future spending allocations,
  - calibrate annual nominal spending growth each year to actual economic performance and revenue collection.
- Consider frameworks for cost-of-living adjustments that maintain flexibility:
  - options include indexation to prices (fully or partially) or use of independent expert pay review bodies (examples: UK and Ireland pay review bodies; Denmark decentralized bargaining; Romania centralized strategic workforce planning).
- Modernize public sector performance management:
  - strengthen links between performance and compensation,
  - implement performance-based incentives and career development pathways.
- Strengthen data collection and monitoring systems to track personnel expenditures, wage trends, and workforce composition to support evidence-based decisions.

### Implementation and next steps
- The report is illustrative and based on data available during the mission; gaps include detailed budget-financed education personnel spending data for 2021-25.
- Results should be read in light of high uncertainty in baseline assumptions.
- The modeling combines a macro-fiscal framework with assumptions about growth in sub-categories of spending; it does not use a cohort model of wage growth and therefore does not capture staff-level cost increases from policy changes (e.g., ageing workforce increasing seniority and pension flows).

*IMF staff calculations, IMF Technical Assistance Report.*

### 44.        Detailed modelling using individualized payroll data would enable more precise modelling.

### tarea2026019-source-pdf - 44.        Detailed modelling using individualized payroll data would enable more precise modelling.

### Detailed modelling using individualized payroll data
- Anonymized individual payroll data enables the calculation of a ‘wage drift’ term that is the growth of the payroll of the government in the absence of policy change (through for example the ageing of the workforce).
- This data enables a range of policy scenarios to be modelled that would not otherwise be possible, including:
  - non-replacement of job exits;
  - reducing hiring by 50 percent;
  - grand-parenting provisions such as allowances;
  - more analysis by sector.
- The modelling approach using this data is the standard approach used by the mission and has received greater peer review and quality assurance.

### Future work and follow-up activities
- Future work could develop more fine-grained analysis of spending issues in Ministries and more tailored reform scenarios.
- Follow-up activities from this mission could include more detailed assessments of the efficiency and fiscal sustainability of personnel spending in particular areas, like:
  - education;
  - military and security;
  - social benefits and allowances.
- Such work would support identification of savings and provide more fine-grained recommendations that reduce the risk of blunt across-the-board cuts or spending increases.

### Estimation of Personnel Spending in Lebanon — data sources and approach
- The estimation of baseline personnel spending integrates multiple data sources, including public financial management (PFM) tables, BdL payroll records, and macroeconomic projections.
- Compensation expenditures are categorized into major subcomponents aligned with existing data availability: military personnel, civil service employees in education and other departments, social benefits, transfers to public institutions, and retirement compensations.
- Figures are reconciled across data sources and ministries to ensure consistency and accuracy.
- Data source specifics by period:
  - Between 2019 and 2021: Primary data source is the fiscal table prepared by the 2023 FAD mission on expenditure diagnostics. Social benefit figures derived from BdL payment records. Residual figures represent reconciled values between these two sources.
  - Between 2022 and 2024: Ministry of Finance is the source for estimates of payroll spending and employment for the Civilian workforce, social benefits and transfers to public institutions, and an estimate of aggregate spending. Supplemented by BdL on total spending on payroll and pensions. Residual figures indicate reconciled values across these sources.
  - For 2025: BdL payment estimates are the main data source for most spending items, except Social Benefits, which are based on the 2025 approved budget, and transfers to Public Institutions for wages, which are sourced from the Ministry of Finance.
  - Between 2026 and 2029: The projected spending envelope is an illustrative example based on the implementation of an IMF Program in late 2025 and standard IMF debt sustainability frameworks. Projections of most subcomponents correspond with anticipated macroeconomic conditions and mostly stable shares (but with a decline in relative pension spending overtime).

### Additional results from baseline analysis — Key statistics (nominal LBP)
- Personnel cost:
  - 2025: 239,289
  - 2026: 278,232
  - 2027: 319,457
  - 2028: 347,660
  - 2029: 373,724
- Total salaries, wages, and social benefits:
  - 2025: 170,955
  - 2026: 201,692
  - 2027: 236,873
  - 2028: 261,752
  - 2029: 284,326
- Compensation of Employees:
  - 2025: 113,655
  - 2026: 132,786
  - 2027: 155,948
  - 2028: 172,327
  - 2029: 187,188
- Military and Security:
  - 2025: 68,972
  - 2026: 79,052
  - 2027: 92,841
  - 2028: 102,592
  - 2029: 111,440
- Civil Service, of which:
  - 2025: 35,426
  - 2026: 42,602
  - 2027: 50,033
  - 2028: 55,288
  - 2029: 60,056
  - Education:
    - 2025: 22,379
    - 2026: 26,912
    - 2027: 31,607
    - 2028: 34,926
    - 2029: 37,938
  - Other departments:
    - 2025: 13,047
    - 2026: 15,690
    - 2027: 18,426
    - 2028: 20,362
    - 2029: 22,118
- Residual:
  - 2025: 9,257
  - 2026: 11,132
  - 2027: 13,073
  - 2028: 14,446
  - 2029: 15,692
- Grants to cover military top-up:
  - 2025: 0
  - 2026: 0
  - 2027: 0
  - 2028: 0
  - 2029: 0
- Other:
  - 2025: 9,257
  - 2026: 11,132
  - 2027: 13,073
  - 2028: 14,446
  - 2029: 15,692
- Social benefits:
  - 2025: 57,300
  - 2026: 68,906
  - 2027: 80,926
  - 2028: 89,425
  - 2029: 97,137
- Treasury Advances cover salaries:
  - 2025: 0
  - 2026: 0
  - 2027: 0
  - 2028: 0
  - 2029: 0
- Transfer for PI wages:
  - 2025: 13,389
  - 2026: 16,101
  - 2027: 16,101
  - 2028: 16,101
  - 2029: 16,101
- Pension and EOSI:
  - 2025: 54,945
  - 2026: 60,439
  - 2027: 66,483
  - 2028: 69,807
  - 2029: 73,298

### Additional results from baseline analysis — Key statistics (Billion US$)
- Personnel cost (Billion US$):
  - 2025: 2.7
  - 2026: 3.0
  - 2027: 3.2
  - 2028: 3.4
  - 2029: 3.4
- Total salaries, wages, and social benefits (Billion US$):
  - 2025: 1.9
  - 2026: 2.1
  - 2027: 2.4
  - 2028: 2.5
  - 2029: 2.6
- Compensation of Employees (Billion US$):
  - 2025: 1.3
  - 2026: 1.4
  - 2027: 1.6
  - 2028: 1.7
  - 2029: 1.7
- Military and Security (Billion US$):
  - 2025: 0.8
  - 2026: 0.8
  - 2027: 0.9
  - 2028: 1.0
  - 2029: 1.0
- Civil Service, of which (Billion US$):
  - 2025: 0.4
  - 2026: 0.5
  - 2027: 0.5
  - 2028: 0.5
  - 2029: 0.6
  - Education (Billion US$):
    - 2025: 0.3
    - 2026: 0.3
    - 2027: 0.3
    - 2028: 0.3
    - 2029: 0.3
  - Other departments (Billion US$):
    - 2025: 0.1
    - 2026: 0.2
    - 2027: 0.2
    - 2028: 0.2
    - 2029: 0.2
- Residual (Billion US$):
  - 2025: 0.1
  - 2026: 0.1
  - 2027: 0.1
  - 2028: 0.1
  - 2029: 0.1
- Grants to cover military top-up (Billion US$):
  - 2025: 0.0
  - 2026: 0.0
  - 2027: 0.0
  - 2028: 0.0
  - 2029: 0.0
- Other (Billion US$):
  - 2025: 0.1
  - 2026: 0.1
  - 2027: 0.1
  - 2028: 0.1
  - 2029: 0.1
- Social benefits (Billion US$):
  - 2025: 0.6
  - 2026: 0.7
  - 2027: 0.8
  - 2028: 0.9
  - 2029: 0.9
- Treasury Advances cover salaries (Billion US$):
  - 2025: 0.0
  - 2026: 0.0
  - 2027: 0.0
  - 2028: 0.0
  - 2029: 0.0
- Transfer for PI wages (Billion US$):
  - 2025: 0.1
  - 2026: 0.2
  - 2027: 0.2
  - 2028: 0.2
  - 2029: 0.1
- Pension and EOSI (Billion US$):
  - 2025: 0.6
  - 2026: 0.6
  - 2027: 0.7
  - 2028: 0.7
  - 2029: 0.7

*IMF Technical Assistance Report — Annex. Additional Information and Data Sources.*

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_Source: https://www.imf.org/-/media/files/publications/tar/2026/english/tarea2026019-source-pdf.pdf_