. Sustainability of exchange rate policies and external public debt in lebanon

Abstract EN

The conduct of exchange rate and fiscal policies in the small open economy of Lebanon has recently become critical in determining the country's future economic and fiscal situation.

This is due to the accumulation of a sizable level of internal and external debts since the early 1990s of the last century, and the pursuit of a fixed exchange rate regime to the US dollar.

This paper presents an empirical analysis of the sustainability of exchange rate and fiscal policies using unit roots and co-integration tests.

It is shown that foreign debt in Lebanon has recently become unsustainable.

It is also shown that if the Central Bank of Lebanon continues to opt for maintaining a fixed US dollar exchange rate arrangement, it would have to implement crisis-prevention measures, namely by exercising fiscal discipline, managing properly its debts and foreign reserves, and avoiding future real exchange rate appreciations