Finance minister walks back
on debt restructuring report

Government committed to Eurobond holders

Caretaker Minister of Finance Ali Hassan Khalil said that the government is committed and will remain committed to its Eurobond issuances and to holders of these bonds.

Khalil’s statement came following a heavy sell-off of the country's dollar-denominated bonds that was triggered by an earlier press report citing him as saying that the Ministry of Finance (MoF) is studying the possibility of debt restructuring.

Khalil said that the MoF is still studying ideas for managing the debt and its structure. It is a voluntary plan and it is part of the reforms pledged by the government at the CEDRE donor conference which include reducing the fiscal deficit, Khalil said according to Reuters. The MoF has prepared the plan for the new Cabinet, once it is formed, and no steps have yet been taken, he said.

“This matter requires decisions in Cabinet, the involvement of parliamentary blocs and the Central Bank (BDL), and others who are concerned with the solutions that we will propose to spare Lebanon dramatic developments,” Khalil said. “We must strive to increase tax collection, and to review public debt servicing,” he said.
Caretaker Minister of Economy and Trade Raed Khoury said, according to Bloomberg, that there’s definitely no restructuring for debt, and that bondholders and depositors are extremely safe.

Mounir Rached, President of the Lebanese Economic Association and a former senior economist at the International Monetary Fund (IMF), said a financial crisis is unlikely as foreign lenders hold a tiny portion of public debt. The risk mainly comes from possible capital flights which would put pressures on the lira, but the maturity of term deposits has recently increased, he said.

The U.S.-based global investment bank Goldman Sachs said in a report released earlier this week that an imminent debt restructuring in Lebanon is an unlikely scenario at present but the risk of a financial crisis is mounting.

Farouk Soussa, an economist at Goldman Sachs said that in the case of a debt restructuring scenario, foreign investors would recover 35 cents on the dollar.

Public debt is unlikely to become sustainable through fiscal adjustment as this necessitates a sharp drop in interest rates or significant economic growth, according to the report. While possible, both “are largely outside the control of policymakers, and are highly dependent on regional economic and political developments,” Soussa said, according to Bloomberg.

Gross public debt stood at $84 billion at the end of October 2018 and the debt-to-GDP ratio has reached nearly 150 percent, the third largest in the world.

The average maturity of deposits reached 5.7 months in the fourth quarter of last year. The average maturity hovered around 45 days for 20 years before the sudden resignation of the Prime Minister in November 2017.