Lebanon has been ranked as one of the top countries with severe negative GDP growth. As shown in the below graph, Lebanon’s GDP growth is also lower than that of its neighboring countries, including Syria which has been facing a war since 2011.

In order to check for potential causes of this severe negative GDP growth, Lebanon was compared with other countries on the level of economic indicators. What is found interesting is that Lebanon has the highest external debt (expressed as % of GNI) compared to other countries, as the below figure shows.

Let’s dig deeper into the relationship between external debt and GDP growth in Lebanon. As the below figure shows, when Lebanon’s external debt made a big jump and increased by 130% (from 147% to 277.9%), GDP growth had a severe decline of 15.5% (from -4.2% to 19.7%).

This relation is validated by a study performed by The Monetary Fund that states that external debt shocks have a negative impact on GDP in both, the short- and medium-terms. This is further shown in bellow screenshot taken from the study (The Monetary Fund,2022).

For this reason, The Monetary Fund, in collaboration with the World Bank, has developed The Heavily Indebted Poor Countries (HIPC) Initiative that provides debt relief for qualifying countries if these countries develop a Poverty Reduction Strategy Paper (PRSP) to show how this relief would help them re-increase there GDP.