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Lebanon Faces Public Debt Funding Crisis

Lebanon Faces Public Debt Funding Crisis

Tuesday, 13 November, 2018 - 10:15
A woman walks outside Lebanon's Central Bank building in Beirut. (Reuters)

 Lebanon is heading towards a serious financial crisis due to the government’s debt maturities in the near term, which must be paid in US dollars, with a growing budget deficit that nearly amounts to 11 percent of the GDP.


The government also needs to earmark amounts for investment spending to cure the deteriorating infrastructure, especially in the areas of air transport, electricity, waste management, water and roads, pending the implementation of the pledges of the CEDRE conference.

 

While the budget deficit rose to 11 percent when the deficit ratio of total expenditures rose to 33.82 percent by mid-2018, compared with 13 percent in the same period last year, domestic and foreign institutions are betting that the prospects for economic growth in Lebanon would be better in the next stage, especially if a new government is formed and began to implement the reforms required by the CEDRE conference.

 

Total public debt is rising five times faster than the GDP. Net public debt grew at a compound annual rate of 6.88 percent in late 2011 and late this year. While the GDP increased by 1.5 to 2 percent.

 

In its latest report, Moody’s classified Lebanon among countries facing market pressure and budget and trade balance deficits. In parallel, it noted that Lebanon’s credit position would be highly affected by the increase in borrowing costs due to the high level of public debt, low capacity to afford high borrowing, and low fiscal buffer.


Debt maturities in Lebanese Pound are not a serious concern, but the ministry of finance will face difficulties in covering the $2.65 billion in dollar-denominated Eurobonds due next year.

 

According to financial sources, local banks’ ability to cover the state funding needs is diminishing unless there is a significant improvement in the internal situation and the implementation of Lebanese commitments to the CEDRE Conference, including basic financial reforms.

 

Local and foreign institutions expect the prospects for economic growth in Lebanon to be better in the coming period, especially if a new government is formed and the sectoral, financial and economic reforms of the CEDRE conference are initiated.


Lebanon’s real economic growth forecast for 2018, based on current data on economic sector activity and estimates of international economic and financial institutions, will range between 1 and 1.7 per cent, after previous estimates put it at 1.5 and 2 percent, compared to the average economic growth rate of 4.5 percent in the MENA region and 4.7 percent in emerging and developed countries, according to the International Monetary Fund (IMF).


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