Lebanon

Lebanon’s central bank aims to keep the exchange rate of its pound currency stable in 2019, the bank’s governor said on Wednesday. Riad Salameh also said Lebanese bank deposits climbed by 3.5 percent in 2018, Reuters reported. The comments were his first in public since remarks by the finance minister last week about Lebanon’s public debt triggered concerns that the debt might be restructured, leading to a sell-off in the country’s dollar-denominated sovereign bonds.

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Top Lebanese officials, including the president, the caretaker prime minister and the central bank chief, are scrambling to reassure bond investors panicking over the risk of debt restructuring after initial efforts at damage-control failed to calm markets, Bloomberg News reported. In a meeting on Sunday at the presidential palace, the officials said Lebanon was discussing how to reduce the budget deficit and implement fiscal reforms -- but would not restructure its debt.

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Lebanon’s caretaker economy minister said there are no plans to restructure debt after the finance minister was quoted as saying the move was being studied, Bloomberg News reported. “There’s definitely no restructuring for debt,” Raed Khoury said Thursday in a phone interview. “Bondholders and depositors are extremely safe.” Lebanese dollar bonds due 2028 plummeted after Al-Akhbar newspaper cited Finance Minister Ali Hasan Khalil as saying planned fiscal reforms include a debt overhaul. Yields jumped the most since the notes were issued in 2015.

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Goldman Sachs Group Inc. still sees an imminent debt restructuring in Lebanon as unlikely but is already turning its attention to how much investors could recover as one of the world’s most indebted countries teeters on the brink of financial crisis, Bloomberg News reported. Under Goldman’s base scenario, foreign investors would recover 35 cents on the dollar, Farouk Soussa, an economist at Goldman Sachs, said in a report. But he said any debt overhaul would put the country’s banks first, meaning “the actual recovery value” would be significantly different to contain damage.

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Lebanon’s finance ministry and central bank have come up with a new plan to finance the debt-burdened country, the Financial Times reported. But their method is set to increase its cost of financing even further, as the government starts issuing local currency debt at market rates — higher than the rates treasury bills are currently issued at — in order to attract local banks.

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Dubai Holding LLC, the investment firm owned by the emirate’s ruler, agreed to acquire a minority stake in the operator of Zara clothing and Virgin Megastore chains in the Middle East, according to people with the matter. The stake purchase in Beirut-based Azadea Group values the business at more than $1 billion, the people said, asking not to be identified as the matter is private, Bloomberg News reported. The two parties reached an initial agreement on the transaction last week, the people said.

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The World Bank halved Lebanon’s 2018 growth forecast to 1 percent, predicting its ratio of debt to gross domestic product would remain on an “unsustainable path,” Bloomberg News reported. The international lender cited a central bank decision to abruptly halt subsidized housing loans as a main factor behind the slowdown in economic activity this year. The real estate sector has provided “a rare source of growth impetus since 2012,” while production in most of the country’s other industries has fallen off, the World Bank said in its October report.
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Lebanon’s finances have long resembled something out of Alice in Wonderland. Some investors are now wondering whether the house of cards is about to come crashing down in a messy sovereign default, the Financial Times reported. The backdrop is stark. The Mediterranean country’s government debt is equal to an eye-watering 153 per cent of its gross domestic product, the third-worst figure in the world after Japan and Greece.
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Lebanon's worst bond market shock in a decade has raised doubts about whether the country's banks are willing and able to continue to bankroll the government, raising pressure on Beirut to step up reforms or risk a destabilising currency crisis, the International New York Times reported on a Reuters story. In September the cost of insuring Lebanese sovereign debt against default soared to its highest level since the global financial crisis of 2008, implying a more than 40 percent chance of default in the next five years.
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The cost of insurance on Lebanese sovereign bonds has soared in recent weeks, reflecting concerns about the sustainability of the country’s debt burden as its economy slows and faces a potential cash crunch, the Financial Times reported. Like many emerging markets, rising global interest rates are swelling Lebanon’s external financing costs as the economy’s growth rate slows to 1.3 per cent this year. The country has the world’s third highest debt-to-GDP ratio at 150 per cent, a legacy of borrowing from public markets to rebuild after its devastating civil war.
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