Monday, December 2, 2019

Although Lebanon was able to meet its November $1.5 billion Eurobond payment, there is a general consensus that Lebanon’s public debt has spiraled out of control. It needs to be reduced both as a share of GDP and in absolute amount. There is a great deal of apprehension that Lebanon may not be able to meet the next bond payment of $1.2 billion due in March 2020. It is evident that the public debt cannot be put on a sustainable path without a major policy adjustment in parallel with a massive, if at all bearable, fiscal effort.

Several experts have mentioned the inevitability of “Debt restructuring,” the conventional approach advocated to address the debt overhang. Restructuring entails: rescheduling, i.e. postponing, debt payment installments; lowering interest payments; and most distressin...

Tuesday, November 12, 2019

Diagnosis – How Did we get Here

1.  A steadily deteriorating balance of payments over the past years has drastically squeezed, if not largely depleted, Central bank reserves. As a result, the fixed exchange rate regime, prevailing since 1997, had de facto to be abandoned. On September 30th, 2019, a two-tier exchange rate system was ushered in under Central bank Circular number 530. The circular guarantees the availability of foreign exchange (at the official rate) exclusively for the imports of three strategic commodities: petroleum derivatives, wheat, and medicines. Hard currency for all other imports or services can hence only be procured on a “parallel” market through authorized money exchangers at rates reflecting supply/demand balances.

2.  In essence, the insufficient foreign exchange...

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