Debt vulnerability and risks for solvency

Lebanon’s public debt has been accumulating rapidly over the past decade and a half, making Lebanon one of  the most publicly indebted countries in the globe. Political imperatives and reconstruction needs led to large fiscal deficits and debt  build up. Higher than anticipated costs combined with elusive assumptions on growth and aid kept the overall fiscal deficit at 22% of GDP by 2000, raising  public debt to 151%  of GDP. Realizing that debt build up could generate solvency concerns, strong fiscal discipline was initiated in 2001 involving freezing expenditure and introducing value added tax (VAT), generating primary surpluses for the first time, and stabilizing the debt rate. Nevertheless, Public debt by end 2006 reached $40 billion, 178% of GDP. The fundamental question remains: how much solvency risk does this level of debt impose on the Lebanese economy? The peculiarities of public debt as well as that of the Lebanese economy