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.
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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.
Lebanon is committed to launching fast and effective reforms that could be “difficult and painful” to avoid a worsening of economic, financial and social conditions, according to a draft government policy statement seen by Reuters on Wednesday. The statement sets the main policy objectives of Prime Minister Saad al-Hariri’s national unity government that was finally formed last week after nine months of wrangling over cabinet portfolios, Reuters reported.
With fixed exchange rates and some of the world’s worst debt and balance-of-payment ratios, Lebanon’s newly-formed government knows it needs to act fast to avoid sinking into a full-blown economic crisis, Reuters reported. Lebanon’s ability to dodge financial disaster has for years confounded critics, whose warnings of debt defaults, balance of payments crises and a collapse of the pound currency, have all failed to materialise. The hope is that it will stay that way, but as the charts below show the numbers are daunting.
Lebanon should consider a voluntary debt restructuring to avert a financial crisis despite pledges of aid from Gulf benefactors, according to Franklin Templeton Investments, which manages $650 billion in assets worldwide, Bloomberg News reported. A debt overhaul needs to be part of a reform program backed by lenders such as the International Monetary Fund, said Mohieddine Kronfol, the firm’s chief investment officer for global sukuk and Middle East and North Africa fixed income.
Qatar threw a $500 million lifeline to Lebanon because of what it sees as its mission to be the Middle East’s emergency lender to nations in distress, according to the country’s foreign minister, Bloomberg News reported.