Moody's downgrades
Lebanon sovereign rating

Changes country’s outlook to stable

Moody's Investors Service has downgraded the issuer ratings of the Lebanese government to Caa1 from B3. It changed the outlook on the country to stable from negative.

The rating agency said its decision to downgrade the ratings “reflects the heightened risk that the government's response to increased liquidity and financial stability risks will include a debt rescheduling or other liability management exercise that may constitute a default under Moody's definition.”

At the end of October 2018, gross public debt stood at $84 billion, which is equivalent to 150 percent of GDP. Moody’s said that the fiscal and monetary levers that the government can use to contain or reverse its high debt and interest burden are becoming increasingly limited.

Fiscal deficit widened to $6.3 billion in 2018 from $3.76 billion in the previous year.

The delay in Cabinet formation is adding to the country’s pressures, according to Moody’s.

“An event of default may be avoided if, upon its formation, a new government takes some fiscal consolidation measures that unlock the CEDRE public investment package,” the rating agency said.

The Central Bank could also contribute to avoiding a default through additional financial interventions provided a broad financial stability is maintained, according to Moody’s.

In a comment on the Moody’s report, Caretaker Minister of Finance Ali Hassan Khalil said that the financial and monetary situation is stable and available resources are enough to meet the needs of the Treasury and all obligations, especially debts.

Khalil said that Qatar’s subscription to Lebanese sovereign bonds bolsters confidence in the country’s bond issues. “We hope that more countries and institutions will support Lebanon,” he said.

Khalil said that there is a need to speed up the formation of a new Cabinet in order to implement the fiscal reforms, reduce the deficit, and start the projects approved at the CEDRE conference.