Lebanon

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.

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.

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.

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.

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.

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.