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Lebanon’s draft budget insufficient to slash country’s debts

Christian Fernsby |
Lebanon’s draft 2019 budget is insufficient to dramatically lower the country’s heavy debt despite spending reductions and revenue-saving measures, according to Moody’s Investor Services.

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The draft budget could restore a primary surplus in Lebanon’s current account, but interest rates remain too high to significantly alter the country’s fiscal position, the rating agency said.

“According to our debt projections, the implied primary balance adjustment and the previously announced interest savings from the refinancing of high interest rate T-bills [State Treasury bills] with lower interest rate bills…remain insufficient to significantly change the debt trajectory because of the persistent interest rate/growth rate differential,” Moody’s said.

As a result, Lebanon’s debt-to-gross domestic product ratio will continue to increase to 155 per cent of GDP in 2023, from around 140 per cent in 2018. That makes it one of the most indebted nations behind Japan, Venezuela and Sudan.

Lebanon's government finalised its long-awaited draft budget last month, aiming for a deficit reduction of 7.6 per cent of GDP in 2019, from 11.5 per cent last year. The budget still requires parliament's ratification which has in the past failed to endorse previous financial plans.

Lebanon's economy has stalled as a result of internal political bickering and an eight-year war in neighbouring Syria. Annual GDP growth rates have fallen to between 1 and 2 per cent, compared to 8 to 10 per cent in the pre-war years.

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