Lebanon has one of the highest debt-to-GDP ratios in the world at about 150 percent.
Explaining Lebanon’s Debt Crisis
Lebanon’s public debt is mostly held by Lebanese institutions (90%), and this debt is largely subscribed by the local banks (47% of total debt) and the Central Bank (32%). On one hand, the fact that a few “big local players” control the national debt is bad, as they tended to impose their own favorable conditions. Average interest revenue on public debt stands at 7% which is very high, and debt maturities are short thus guaranteeing an almost stable source of revenue for the sector. Yet on the other hand, having debt concentrated in the hands of a small number of institutions renders the stakes of default extremely high on them, and they have direct vested interest in keeping the system afloat.
Lebanon ranked 72 out of 113 countries in terms of constraints on government powers, 87 in terms of the absence of justice, 89 in terms of open government, 81 in terms of fundamental rights, 82 in terms of order and security, 86 in terms of regulatory enforcement, 79 in terms of civil justice and 86 in terms of criminal justice.
Lebanon rose two positions from last year’s Index, previously ranking at 89.
With an estimated debt of $80bn, representing 150 percent of GDP (the third highest percentage in the world, behind Japan and Greece), a budget deficit tantamount to 10 percent of GDP, not to mention the country’s over-stressed obsolete infrastructure and the presence of a million-plus Syrian refugees (a quarter of the population), the country’s economic difficulties are no secret.
The country has been hard hit by the crisis in Syria.In 2011, economic growth in Lebanon was at an estimated 9 percent. In 2017, it had plummeted to 1.1 percent.
And the perspective of an international conference of donors and international backers, held in Paris on April 6, and the government’s efforts to pass the 2018 budget prior to that date was unable to restore Lebanese confidence.
A further US$2.7 billion is needed to meet needs in 2018, under the Lebanon Crisis Response Plan. With upcoming conferences in Paris and Brussels aimed at mobilizing further support for the humanitarian response and for Lebanon in particular – it is more vital than ever that donors stay the course amid deepening poverty and growing vulnerabilities – which equally strain abilities to support vulnerable members of the local community who are also struggling with limited resources and help prevent social tensions between Lebanese hosts and refugees.
Poverty in Lebanon
Even though the Syrian crisis caused the poverty rate in Lebanon to increase, the GDP is also increasing ,and the debit to GDP ratio is also increasing.
Lebanon’s population is 87% urban, concentrated mainly in coastal cities; in particular, within the capital of Beirut. While the national GDP per ca-pita of $18,500 makes it a middle-income nation, Lebanon’s poverty rate is high at 30.2 percent. Unemployment is also a major problem, standing at 35 percent.
In year 2020, the Lebanese people are expected to be poorer with more than 1.3 Million are under line of poverty.
The political elite does not seem willing to actually reform the system that is serving its interests through excessive spending and debt financing. Politicians will buy time through other gimmicks and will try to monetize the Syrian refugee crisis through another international conference to collect funds, lest any economic collapse have geopolitical consequences for Europe. While some may then praise the resilience of the economic system, it will remain fragile and vulnerable, with a poor record in creating jobs and enhancing the productivity of the private sector.