The Onerous Cost Of Sovereign Debt In Lebanon

There is nothing wrong about debt. A modern developed and efficient society is often differentiated from a developing and less sophisticated one by the relative importance of its financial sector whose primary function is to intermediate between those that save and those that demand funds for investment. As business enterprises grow they exhibit a voracious appetite for capital in order to build new factories, laboratories and undertake research. The typical life cycle of the average citizen is also highly dependent on the world of finance. Great sums of money are required to nurture individuals as they are growing up. Most people do not start producing a surplus until the late twenties or early thirties but then they retire at say the age of sixty five. Governments are not any different. As soon as it was shown that macroeconomic performance of a state can be enhanced through an activist role by government then the idea of deficit finance became arguably the most important tool in the quiver of fiscal policy. But as any tool in any field borrowing can be productive and helpful when used appropriately and it can be destructive when abused.

Not to be outdone by governments that have accumulated irresponsible levels of debt t he Lebanese Government opted for the easy path solution of borrowing itself into prosperity. We all know the figures; debt/GDP stands at over 150%, debt service/GDP is over 10% while debt service/ Annual Budget amount to an unconscionable 40%.

Government officials never tire of assuring us that the large sovereign debt is under control and that this level of indebtedness poses no risk to the health of the Lebanese economy. Let us assume that the government is right (I do not believe it for a minute) and let us take a cursory look at their proposed budget for 2011. Budgets are important documents because they reveal the priorities of the preparers and offer a strong clue about what they hold dear. So let us see how the current government wishes to handle the Lebanese burgeoning national debt.
The following table has been assembled out of the various schedules supplied by the Ministry of Finance.

..………………………..2011……………..2013

GDP………………....$40 Billion………$45.5 Billion
Debt Service…..10.4%..............8.9%
Budget Expen….34.2%.............29.5%
Budget Rev……..24.4%.............23.8%
Deficit……………..9.8%..............5.7%

So what does the above table show? A callous government that has no concern for the level of welfare of the average citizen .Despite a GDP growth from$40 billion to $45.5 billion the actual level of expenditures by the government; excluding debt service; decreased even in nominal terms. That is very highly irresponsible in a growing economy and a great cause of concern about the fraying social fabric of society. Once the above percentages are expressed in actual numerals then this is what we find out:

……………………………………2011…………………2013
GDP…………………………….$40billion………..$45.5
Debt Service………………$4.16 billion………..$4.05billion
Budget Expen…………..$13.68 billion………...$13.42billion
Budget Rev…………………$9.76billion………..$10.83billion
Deficit…………………………$3.92………………….$2.59

Note that the level of Expenditures once the debt service is excluded drops from $9.52 billion in 2011 to $9.37 billion during 2013. Yes you heard it right. The Lebanese state wishes to decrease its primary expenditures by $150 million even though its projected revenue had increased by $1.07 billion during the same period. There is only one explanation for this. The level of sovereign debt has become so high that the authorities feel the need to divert every available dollar into debt service. The debt monster threatens to swallow us all unless we get the courage to ask for rescheduling/forgiveness/moratorium or even a selective default. Studies have shown that countries that default are most of the time capable of meeting their obligations but at a great pain. Lebanon is in that situation. Please also note that as we pay all this debt service by not spending on education, health care and other social services the debt is also increasing. Actually the absolute increase in debt is greater than the projected growth in the GDP. A government that presents such a budget cannot be described except as callous and indifferent.