stability

Since the early nineties, Lebanon has undertaken a number of economic reforms, covering in particular international trade and internal fiscal policy issues. Simultaneously, debt has been skyrocketing, partially justified by reconstruction needs after the end of the civil war. Fostering economic growth seems to be the only way out of the debt trap, but reforms intended to stimulate growth may well have adverse short run effects on public and external deficits. We construct a dynamic open economy CGE model with debt constraints in the sense that external debt requires physical capital as collateral. This model allows us to study the effects of a number of important economic policy issues (fiscal policy reform, WTO membership, FDI) in a multisectoral dynamic setting under the realistic assumption that debt constraints relax when the economy starts growing. In particular, this paper, reports results on scenarios of trade liberalization and political stabilization