Lebanon’s debt: Financed by many but benefits few

Despite the high risk associated with the growing public debt amidst the slow growth in the economy, the Lebanese government has managed to continue borrowing from local banks. How do local banks sustain the lending to the government? Who benefits from this system? And at what cost?

Diaspora finance Lebanon’s debt  

The Lebanese government borrows primarily from local banks. Many times, countries owe the majority of their debt to foreign countries and international organizations. Such was the case for Argentina in 2001 and Greece in 2012, the two of the largest debt crises in recent history. In Egypt, for example, most of the debt is owed to or guaranteed by other governments. The case of Lebanon is different as the debt is mostly domestic. Today, Lebanese banks hold almost 80% of the total public debt1. In turn, these banks accumulate the large sums of money to lend the government through the numerous deposits placed by Lebanese, to a large extent by those living abroad – also called remittances. According to the IMF estimates, Lebanese remittances comprised between 15% and 20% of Lebanon’s GDP over the past five years growing at an annual rate of 10%2. The banks invest more than half of these remittance deposits by lending money to the government. Through this chain, the Lebanese depositors end up financing their own public debt.

… but the debt restricts the financing of many Lebanese

With the interest on government debt, the bank receives steady returns and lends 60% of its funds to the public sector. These constant profits and the better understanding of the political and economic situation leads to domestic banks to have longer term commitments to finance the debt compared to international creditors, providing some stability to the country. However, this has also limited available funding to the private sector that carries higher risk. Lebanese banks lend only 25% of their funds to the private sector, of which only 20% target small and medium enterprises (SMEs). This has weakened the growth of businesses and firms that generate most employment and growth in the country.

Politicians borrow, but make profit

The profits that banks earn from financing the public sector debt mostly go to handful of politically connected elite families. While the banks own most of the debt, politicians own many of the banks. Politicians and their families and friends control almost half of banks’ assets in Lebanon. Over one-third of the assets are directly owned by politicians’ family members. And another 16% is owned by other families that are politically connected to politicians. Therefore, these families make direct profit on government debt through high interest payments. For example, BankMed, owned by one politician’s family, earned $108 million as interest payments since 2006. Accordingly, this incentivizes politicians, that currently control the government, to continue borrowing and registering high interest payments.

Figure 1 – Politically connected families benefit from interests paid on public debt to banks

So Lebanese politicians spend wastefully

With no incentives to reform government spending, politicians continue to spend wastefully. According to the World Economic Forum’s report, Lebanon is placed among the 10 least efficient governments in the world3. Specifically, Lebanon is in fourth position, only behind Venezuela, Italy, and Argentina. On the contrary other countries in the region rank much better than Lebanon. For example, Qatar and UAE were ranked among the top 10 most efficient governments in the world.


IMF. 2008. Lebanon – Weathering the Perfect Storm.

IMF. 2017. Lebanon Selected Issues.

Chaaban. 2016. I’ve Got the Power: Mapping Connections between Lebanon’s Banking Sector and the Ruling Class.