The Ministry of Finance laid down its Medium Term Debt Strategy for the period 2014-2016, where the main aim is that “the government’s financing needs and its payment obligations are met at all times, at the lowest possible cost over the medium to long run and consistent with a prudent, acceptable degree of risk.” Moreover, another goal is to develop primary and secondary domestic markets through a predictable domestic issuance strategy.
After studying the country’s fiscal situation, the findings were as follows. First, Lebanon’s gross public debt-to-GDP ratio, which is among the highest in the world, stood at 138% end of 2013, up from 132% in 2012, still below its 180% peak in 2006. If adjusted for the public sector’s idle cash deposits in commercial banks and the Lebanese Central Bank, public debt would stand at 116% of GDP, end of 2013. Moreover, 40% of total debt was in foreign currency, below the agreed ceiling of 50%. The study also showed that the share of interest cost to government revenues had risen 2% in 2013, to 40%, leaving less fiscal space for development expenditures.
Following an analysis of alternative financing strategies, the report stated that rollover risk of maturing debt and the possible adverse interest rate movements can be mitigated by extending maturities, more debt at fixed interest rate, and more debt in the local currency. The lower risk of a financing strategy would generally entail a higher cost. Accordingly, testing a wide range of financing strategies through simulation against a variety of market shocks over a 3Y period allowed the ministry to base its strategy for 2014-2016 on an increased reliance on foreign borrowing over the same period to mainly cover for the redemption and the interest payments of foreign currency debt. However, the government will continue the gradual extension of maturities that has been achieved in the past years, aiming to lengthen the average time to maturity.