Improving Public Debt Management
In the OIC Member Countries
152
in total public debt. The share of multilateral debt (debt extended by the IMF or the World
Bank) in foreign currency debt is comparably low at 2.8%.
In March 2016, 88.9% of outstanding foreign currency debt was kept in marketissued Eurobonds, 6.2% in private sector loans and 4.7% in debt related to the Paris conventions II and III.
Average time to maturity of foreign currency debt has steadily decreased from 7.24 years in
2008 to 6.07 years in March 2016. Public and publiclyguaranteed foreign currency debt is
mostly denominated in U.S. Dollars (around 92% of foreign currency debt in 2015) while debt
denominated in Euros accounts for only around 4.5%.
C) Policy RecommendationsPublic debt management in Lebanon follows guidelines proposed by the World Bank and the
IMF. There is a Public Debt Directorate located at the MoF responsible for debt management.
However, there are still several institutions involved in public debt management. As long as all
public debt management functions are not centralized at the Public Debt Directorate, it is
important that regularly exchange of information and coordination is ensured. Lebanon’s debt
management strategy considers several risk indicators and sets objectives for the public debt
portfolio. The debt management strategy is published online and the MoF quarterly publishes
information on the public debt profile.
Regarding public debt developments, Lebanon is currently stuck in a vicious circle: increasing
debt necessitates higher debt servicing payments, which in turn increase budget deficits. These
budget deficits result in higher borrowing needs, new debt and, consequently, in increasing
debt stocks. Reducing Lebanon’s public debt stock should be a high priority for policy makers
in Lebanon. One possible instrument against rising public debt is the privatization of public
sector assets and companies. Privatization would increase government revenue through the
return on sales of public sector assets and also increase foreign direct investment, competition
in the respective markets and efficiency in the management of state owned companies.
Because of the currently high country risk, public sector assets might, however, be
undervalued if they were offered for sale at the moment. Alternatively, the formation of PublicPrivate Partnerships can bring some of the benefits of privatization (such as lower expenses
for the state) while leaving control over the assets in the hands of the public sector, which
makes them politically more feasible than privatizations. To achieve a reduction in public debt,
changes in the tax system might be necessary, such as a slight increase of the VAT (IMF 2015a)
or increases of corporate and interest tax rates (Neaime 2015, Credit Libanais 2016). It is also
important to improve the tax collection system.
The Public Debt Directorate and the Lebanese Central Bank are recommended to continue
making use of financial engineering schemes that lower the government’s cost of borrowing
and support fiscal sustainability. In particular, these schemes might be used to reduce the
yields on government bonds and, as such, the cost of debt. The maturity of public debt might be
expanded. These objectives could be achieved, for example, through swaps of domestic
currency debt to foreign currency debt which generally has lower yields and higher maturity.
In these regards, Lebanon has recently used swaps of domestic currency debt to Eurobonds.
The MTDS 20142016 also describes the intention to raise the share of foreign currency debt.
However, the use of these instruments is limited as the share of foreign currency debt is
already high amounting to 41% of total debt. Another scheme would be the swap of longterm
bonds with low coupon to a lower number of bonds with higher coupon. While this scheme
increases the cost of debt through higher coupon, it lowers the value of the outstanding public
debt stock.