Lebanon

Lebanon’s central bank has secured up to $1.4 billion in five-year deposits from private investors overseas, boosting dollar reserves in one of the world’s most-indebted countries and easing concerns that it could struggle to repay its debts and defend its currency, Bloomberg News reported. Governor Riad Salameh said in an interview with Bloomberg TV in Beirut that Banque du Liban remains committed to preserving the Lebanese pound’s peg of about 1,507.5 to the dollar, in place for more than two decades, and has “ample” cash to do so.

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Lebanese Parliament Speaker Nabih Berri said he had a “positive” feeling over a sovereign credit rating report expected later this week, although he had no information about it, Lebanese newspaper al-Joumhouria reported on Wednesday, Reuters reported. Lebanon, saddled with one of the world’s heaviest public debt burdens and blighted by years of low economic growth, is seeking to put its public finances on a sustainable path by implementing long-delayed economic reforms. However, markets have been pricing in the risk of a sovereign credit rating downgrade in recent days.

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Dollar-denominated bonds issued by Lebanon’s government dropped to new lows on Tuesday on worries about the risk of a sovereign credit rating downgrade by S&P Global, Reuters reported. The 2027 issue slumped by 2 cents in the dollar to trade at its lowest level, while the 2026 issue shed 2.4 cents to also reach a new low, according to Tradeweb data. “There’s an upcoming rating review by S&P and people are focusing on the possibility of a downgrade,” said Giyas Gokkent, of JPMorgan Securities.

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Lebanon’s sovereign ranking will probably be cut deeper into junk by S&P Global Ratings within days, putting its bonds into a category considered vulnerable to nonpayment as the country struggles to claw back enough foreign currency, according to Goldman Sachs Group Inc, Bloomberg News reported. One of the world’s most indebted nations is on negative outlook at S&P, which is due to publish a review on Friday and currently rates Lebanon B-, six steps below investment grade and one notch higher than Moody’s Investors Service.

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The cost of insuring exposure to Lebanon’s sovereign debt rose to a record high on Friday after the president warned of the risk of harsh financial measures from international institutions unless sacrifices were made to save the country from economic crisis, Reuters reported. Lebanon’s five-year credit default swaps (CDS) rose to 990 basis points (bps), up 33 bps from Thursday’s close, data from IHS Markit showed.

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The Lebanese government is deferring payments to contractors and public entities, improving the budget numbers but endangering a lifeline for businesses, Bloomberg News reported. Delayed payments for this year alone have exceeded $900 million, pushing the outstanding total to over $2 billion, according to a person familiar with the matter. The government owes contractors about $300 million, half of which was incurred in 2019, said Maroun Helo, head of the Lebanese Contractors Syndicate of Public Works and Buildings. Contractors are defaulting on debt, he said.

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Heavily indebted Lebanon has passed a budget seen as a “first step” towards fixing its public finances but still has much to do to steer the country away from crisis. Investors are waiting to see if Gulf Arabs will offer a lifeline that may provide some breathing space, Reuters reported. Lebanon has one of the world’s heaviest public debt burdens, after years of big budget deficits rooted in waste, corruption, and sectarian politics.

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Lebanon needs a plan to manage its huge public debt that offers a chance to “liberate the public budget from the burden of a deadly accumulation of debt and debt service”, finance minister Ali Hassan Khalil said on Thursday. Khalil told parliament that such a plan would need to be discussed by stakeholders including the government, the central bank and commercial banks, Reuters reported. “This requires a dialogue by the government, between the government and (parliament), a dialogue in which the central bank participates and the banks participate.

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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”.

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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.

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