The Lebanese state is getting rid of its debts, by setting the biggest trap for depositors.
In the year 2021, the Lebanese public debt exceeded $95 billion, to reach the threshold of $96 billion, during the first month of 2021. The total public debt has increased by about $3.94 billion, compared to the level it was in January of the year 2020, which amounted to $92 billion. The public debt is distributed between 62.24% in national currency and 37.75% in foreign currencies.
Economists agree that the problem is not the number of public debt, but rather its ratio to the gross domestic product. According to the latest figures published by the Ministry of Finance, which set the total output at 55 billion US dollars, the ratio of public debt to GDP exceeded 170%, but this year with A GDP that will not exceed US$18.7 billion, according to IMF estimates.
The public debt-to-GDP ratio will rise to 513%, but this ratio, in light of the deterioration of the Lebanese currency against the dollar, becomes theoretical and subject to change from hour to hour. Today, with a dollar equivalent to 17,000 Lebanese pounds, the actual ratio of public debt to GDP expected by the International Monetary Fund is 53.47%.
Public debt continues to rise in theory and decrease in practice.
Today, the book debt is estimated at 95.94 billion dollars, and it is divided between a foreign currency debt estimated at 36.24 billion dollars, and a national currency debt estimated at 59.69 billion dollars in Lebanese pounds at the exchange rate of 1515 pounds. The Banque du Liban and commercial banks hold the equivalent of $17 billion, or about 47% of the total debt in dollars. While the majority of the debt is distributed in Lebanese pounds to the Banque du Liban, banks and Social Security, which holds the lowest share, estimated at 12 trillion pounds.
It is noteworthy that the public debt continued to rise despite the Lebanese government’s announcement in March 2020 that it had stopped repaying debts in dollars (Eurobonds), and its intention to reschedule those denominated in Lebanese pounds. This is evident in the general budget recording in 2020 a theoretical deficit of 7 percent of GDP, or an estimated $3.9 billion.
Knowing that calculating the decline in revenues by more than 50 percent in the year 2020 and the continuation of operating expenditures as is, raises the deficit percentage to more than 11 percent, or what actually ranges between 6.5 and 7 billion dollars. At a time when the government is unable to borrow to compensate for the deficit, it prints money from the Banque du Liban to pay the dues without registering it as a debt on itself.
The Central Bank is committed to filling the financial gap in the state budget under the “Cash and Credit” law, as the state needs 1,300 billion pounds per month for expenses and salaries for public sector employees, at a time when treasury imports have witnessed a sharp decline since the end of 2019, which requires the state to pay what it owes. By printing the national currency.
Consequently, the Central Bank is now in front of the anvil to pay the price for the state’s inability on the one hand, and the hammer to secure the salaries of 39 percent of the workforce, which are public sector employees and the security and military sectors.
Reducing the public debt through the state’s denial of it.
Denying the public debt means that the state stops paying the interests of the public debt, its origin, or both together, and the state stops paying in the event of its bankruptcy or in the event of revolutions and civil wars. Examples of denial of public debt are what happened in Russia, Germany, Brazil and Colombia in the century The twentieth century after the First World War, and in this case this denial of the public debt is an apparent denial.
There is a hidden denial of the public debt, when the state resorts to getting rid of its debts by reducing the value of its currency through the expansion of money printing and rapid and unbridled inflation, for example, what happened in Germany after the First World War, when the value of the German mark fell in 1923 to almost zero, And the state was able to pay off its debt.
What is currently happening in Lebanon is the payment of the public debt through apparent denial as a result of the Lebanese government’s announcement on March 9, 2020 to stop paying the Eurobonds, and the internal denial through the continuous printing of the national currency and the increase in the monetary mass, as the Central Bank of Lebanon’s statistics indicate that the financial mass circulating in The economy is witnessing a continuous rise, with a value of 35.980 billion pounds in mid-March, compared to 34.487 billion pounds at the end of last February, an increase of 1,493 billion pounds within 15 days.
According to sources in the Banque du Liban, the monetary mass in circulation may exceed 44,000 billion pounds at the end of June, after it was about 17,000 billion pounds in 2019, i.e. pumping about 2,000 billion pounds per month into the Lebanese economy as an average rate.
As a result of the country’s default and its suspension of Eurobond payments, the bond price fell to between 12.38 and 13.63 cents per dollar at the end of this week, according to a Bank Audi report issued on June 25, 2021.
As a result of the continuous printing of the Lebanese pound and the increasing demand for foreign currencies, especially the US dollar, and its low supply, the price of one US dollar today exceeded the threshold of 17,000 Lebanese pounds.
The decline in the price of the bond and the rise in the price of the dollar against the lira reflect positively on the devaluation of the public debt. Today, the public debt, which is theoretically equivalent to about 96 billion US dollars, has its actual value only about 10.030 billion US dollars, a decrease of about 89%.
Public debt book Public debt actually
Eurobonds $36.24 billion $4.711 billion
lebanese bond $59.69 billion $5.319 billion
total $95.94 billion $10.030 billion
I count the numbers above:
On the book: The official exchange rate of the dollar, which is 1515, and the base price of the Eurobond when it is offered for sale. Actual:
The actual dollar exchange rate today is 17,000 liras, and the average rate for today’s Eurobonds is 13 cents per dollar.
Taking into account that the public debt is subject to further decline as a result of the deterioration of the exchange rate of the lira and the loss of the value of Eurobonds.
But the positiveness of the decline in public debt is offset by many negatives, including, but not limited to:
1- A decline in the purchasing power of citizens, which is reflected in an increase in poverty.
2- The purchasing power of citizens’ savings is declining, most of which are earned from their lifetime and end-of-service benefits, which they saved in banks to live on from the interest collected annually.
3- The decline in the value of deposits in foreign currencies, as a result of their squandering by banks, the Central Bank and the Lebanese government, through financing the Lebanese state and filling the annual deficit in the balance of payments, which led to a loss of confidence in the banking sector, which has been a mainstay in the Lebanese economy since independence.
4- The decline in the provision of health services, as a result of the loss of basic supplies and medicines, which threatens the possibility of serious health disasters.
5- The decline in the provision of basic services such as transportation, electricity, water, telephone and the Internet, and the fear of losing them permanently or almost permanently.
6- The decline in the provision of tourism services as a result of the decline in the provision of basic services.
And many other negatives that cannot be enumerated and that result from poverty and the loss of services.
In sum, the Lebanese state, which has a duty to protect its citizens and preserve their interests, has set a trap for Lebanese and foreign depositors by raising interest rates on deposits in Lebanese pounds or in US dollars, and the existence of the Banking Secrecy Law, which encouraged many Lebanese and foreign depositors to deposit their money in Lebanese banks.
Or buying debt bonds in Lebanese and foreign currencies, and from these deposits the state has financed failed economic policies and failed economic policies for decades, and failed financial engineering, reeking of waste, theft, consensual deals and commissions, etc…