Slowing capital inflows to Lebanon and weaker deposit growth increase the risk of a debt rescheduling or other steps that may constitute a default despite fiscal consolidation measures in the 2019 draft budget, Moody’s Investors Service said. The draft budget aims to cut the deficit to 7.6% of gross domestic product from 11.5% last year, with Lebanese leaders warning the country faces financial crisis without reform, Reuters reported. Asked about the Moody’s credit analysis, Finance Minister Ali Hassan Khalil said on Thursday “matters are under control”.
The price of Lebanese government debt is once again in freefall as investors eye political infighting in Beirut and rising tensions across the Gulf, the Financial Times reported. Spreads on 10-year Lebanese dollar bonds over US Treasuries have widened to the highest levels since at least 2011, according to Bloomberg data. The price of five-year Lebanese credit default swaps, bought as a form of insurance against non-payment on the bonds, hit 921 basis points this week, a fifth higher than levels at the turn of the year.
Lebanon’s plan to bring its budget deficit back into single digits is a step in the right direction, but it needs to regain market access to keep default concerns at bay, Fitch’s rating analyst said on Thursday, Reuters reported. Heavily indebted Lebanon’s government approved a 2019 budget on Monday including deep spending cuts to narrow its projected deficit to 7.6% from 11% of gross domestic product (GDP) and stave off a financial crisis. Fitch put a ‘negative outlook’ - effectively a downgrade warning - on its ‘junk’ B- Lebanon rating in December.
Heavily indebted Lebanon has unveiled an unprecedented plan to bring its public finances under control but faces an uphill struggle to restore investor confidence that is needed to stave off crisis, Reuters reported. After years of backsliding on reform, fear of economic catastrophe has forced action on Lebanese leaders who have overseen the post-civil war policies that landed the country with one of the world’s heaviest public debt burdens. Minds in Beirut have been focused by years of low economic growth and a slowdown in deposit growth in the banking sector.
From retired soldiers fighting for their pensions to striking central bank staff, few in Lebanon feel they’ll be spared what the government is touting as the most austere budget in their country’s history, Bloomberg News reported. One of the world’s most indebted nations has little time to spare after decades of fiscal overreach and mismanagement of public finances.
Lebanon is eyeing the debt markets nervously. The country, which is lining up a $2.5bn bond sale partly to pay off $650m coming due on Monday, was hoping to capitalise on improved investor sentiment after it finally formed a government in February. But the timing is unfortunate — that new cabinet still has not come up with a budget for 2019. Emerging market investors are in a generally forgiving mood.
Lebanon's president called on Tuesday for approval of the 2019 draft budget by the end of May in order to launch long-stalled economic reforms, though military veterans fearing pension cuts took to the streets, the International New York Times reported on a Reuters story. Wrestling with one of the world's heaviest public debt burdens and years of low growth, the Lebanese government has promised reforms which economists deem more pressing than ever. But it risks public anger if it trims wages, pensions or benefits in its massive public sector bill.
The market’s memory is so short when it comes to Lebanon that a few weeks of government inaction all but wiped out a bond rally fueled by Gulf aid pledges and the end of a nine-month political stalemate, Bloomberg News reported. The brief morale boost is giving way to frustration among investors and creditors as a new cabinet formed in January fails to discuss, let alone act on, promised measures meant to shrink a yawning budget gap and jumpstart growth.
The powerful Lebanese Shi'ite group Hezbollah on Tuesday urged the new government to launch talks with banks to bring down the cost of servicing the state's massive public debt, setting out its view on the major problem in unusually clear terms, the International New York Times reported on a Reuters story. The remarks by a Hezbollah lawmaker in parliament point to the wider influence his heavily armed group aims to exercise over the way Lebanon is governed as it departs from the more marginal role it has played in the past.
Authorities in Lebanon, which has one of the world’s highest debt to GDP ratios, have not asked the International Monetary Fund to provide funding, the IMF’s regional head told Reuters on Monday. Lebanon has some of the world’s worst debt and balance-of-payments ratios and recently spent more than nine months without a government it needed to enact long-overdue reforms, Reuters reported. Concern grew over the state of the economy and government finances as the impasse dragged on. But despite its problems, the government has avoided asking for IMF aid.