At the end of this week, the Lebanon government will sign a six months agreement with McKinsey & Co. to restructure its week economy, announced the Economy and Trade Minister Raed Khoury. The consulting firm will start to work with various ministries to implement a long-term strategy for the Lebanon, which has the highest debt in the Arab world and the world’s third highest in terms of debt-to-GDP ratio.
The government implemented over the course of 2017 a series of structural reforms to boost revenue and stop the debt rising, but they had little effects on the fiscal balance and weren’t enough to lift the previous Moody’s downgrade.
Over 50 percent of Lebanese are living abroad, especially in other Gulf and African countries, and the weak economy survives through the remittances that have kept flowing in from outside the country. This helped Lebanon to accumulate big foreign reserves and to avoid a fiscal crisis, despite the political turmoils that left the country without a President or Prime Minister many times.
The Lebanon’s Economic and Trade minister said this model is no longer sustainable, and that the debt-to-GDP ratio could rise to 170 percent in the next years if no actions are taken. The country is changing its demography quickly, especially due to the Syrian civil war, which produced at least 1,5 million refugees who have fled to Lebanon to escape from war atrocities. Khoury thinks Singapore is the model to follow for the Lebanon, as the two countries share a similar demographic structure.
Lebanon’s economy has many grey areas, as the money controlled by the Hezbollah group, and will be difficult for McKansey’s consultants to analyze them.