In its Regional Economic Outlook (REO), the IMF reported Lebanon's external debt-to-GDP ratio at a staggering 950% in 2022. Our analysis reveals this alarming figure is not just a reflection of Lebanon's economic crisis, but also a product of a flawed and misleading calculation methodology used for countries experiencing extreme exchange rate volatility.
How to Inflate a Debt Ratio: The REO Method
The core issue lies in using two different exchange rates to value two parts of the same equation. During a currency crisis, this creates a major distortion.
External Debt (Stock)
Converted using the End-of-Period Exchange Rate (Higher Value)
GDP (Flow)
Converted using the Average Exchange Rate (Lower Value)
Inflated Debt/GDP Ratio
An exaggerated result that overstates the debt burden.
Visualizing the Discrepancy
This chart compares the IMF's inflated REO calculation against more realistic estimates, including the IMF's own Country Team report and our analysis. The difference is stark, especially during the peak of the currency crisis in 2020-2022.
Why This Flawed Number Matters
Distorted Risk Assessment
Inflated ratios create a misleading picture of a country's debt sustainability, potentially leading to inaccurate risk assessments by investors and credit rating agencies.
Policy Misguidance
Based on these exaggerated figures, policymakers may implement inappropriate or overly restrictive austerity measures, hindering economic growth and development.
Reduced Investor Confidence
Overstated debt levels can erode investor confidence, leading to capital flight and further economic instability at the worst possible time.
Impact of Our Analysis
After presenting our findings to the IMF, they acknowledged the issue. While the global methodology will not change, they have agreed to append metadata to future WEO/REO reports to explain the discrepancy for countries like Lebanon. This action highlights the limitations of their approach and achieves a critical goal: greater transparency in global economic data.