Over the last two years, the Lebanese government
has been working to bring large public deficits and mounting
debt under control, but with limited success. Lebanon's mounting
debt problems and stagnant economic growth are making politicians
increasingly willing to take drastic and unpopular measures
to revert the situation. The critical state of the country's
finances is forcing politicians to form a consensus on economic
policy, though the exact form of those reforms isn't yet clear.
Last September the International rating agency
Standard & Poor's announced it had lowered its credit rating
for Lebanon to B+ from BB-. S&P said the main reasons for
the downgrade were Lebanon's persistently high budget deficits
and ballooning public debt. By the first of this year, it was
reported that Lebanon's budget deficit widened by almost 64
percent last year as government efforts to curtail spending
and boost revenue failed, according to data released by the
Ministry of Finance. The deficit expanded to 5.82 trillion Lebanese
pounds ($3.9 billion) from 3.59 trillion the year before as
revenue fell almost 7 percent, and spending increased by more
than 23 percent.
Debt servicing, which accounted for more than 40 percent of
spending, rose 15 percent, the data indicated, and domestic
debt- servicing accounted for about 85 percent of total servicing
costs.
Revenue from customs, the government's single largest source
of income, declined almost 11 percent to 1.75 trillion Lebanese
pounds.
The government is under pressure to bring its
finances under control because of the costs associated with
spiraling public debt estimated at about $22.4 billion, equivalent
to about 140 percent of gross domestic product. The government
has been switching domestic short-term debt denominated in Lebanese
pounds (Interest rates have a wide spread between the Lebanese
Pound and the American Dollar) to cheaper longer-term debt in
foreign currency. Total foreign public debt, most of which is
Eurobonds, stood at $6.31 billion at the end of September.
Over the last three and a half years, the situation
on this front has deteriorated, which prompted the downgrade
of the country's rating to 'BB-'. Public sector debt will exceed
140% of GDP in the coming months, and there are no immediate
signs of a reversion of this very worrisome trend. It is not
too late to avoid this pile of debt - the highest of any rated
country - spiraling out of control. Indeed, Lebanon has significant
strengths that reduce the economy's vulnerability vis-a-vis
other emerging countries - namely its developed financial system
and the sizable assets held by Lebanese citizens overseas. But,
to take full advantage of its strengths, it is essential that
Lebanon address its public debt problem through a combination
of fiscal discipline, privatization of public assets and debt
restructuring. Lebanon's debt dynamics since 1990 are largely
explained by the fiscal shortfall accumulated in an effort to
rebuild infrastructure after the country's protracted civil
war. Massive public investment programs have pushed the government's
fiscal deficit well into double digits every year for over a
decade. While these investment programs might be justified by
the extent of devastation after the war, successive governments
have been unable to meet budget targets and overruns have been
frequent.
Politicians have not publicly discussed some of
the real reasons for the dire financial situation until very
recently due to fear of reprisals, however the people have always
known the truth. The reasons are mainly due to the Syrian occupation
and the unstable situation in the south.
Syria's occupation has siphoned off a large amount
of Lebanon's resources primarily due to the massive influx of
cheaper laborers who sent their income back to Syria. This prevented
adequate paying jobs for Lebanese citizens and thus removed
monies from circulation in the Lebanese economy. In addition
to this situation there is the matter of the hundreds of thousands
of Palestinian refugees living in camps.
This situation has precipitated a massive exodus
of young educated professionals (mostly Christian) from the
country who otherwise would have stayed to lend their talents
to the rebuilding of their homeland, many never to return. The
most severe consequence has been the widening disparity between
the wealthy and poor classes practically erasing the large middle
class.
Reconstruction Aid:
Humanitarian Aid:
a) South
b) Other Impacted Areas