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Moody’s concerned over politics and public finances

Moody’s Investors Service indicated that the high level of Central Bank reserves is reassuring but the agency remains wary of the country’s fragile politics and weak public finances, as reported by The Lebanon Weekly Monitor, Bank Audi’s economic publication.

 

Lebanon’s sovereign ratings as per Moody’s are as follow: long term issuer (domestic and foreign currency) ratings at B1, senior unsecured (foreign currency) ratings at B1, Senior Unsecured MTN Program (foreign currency) at P(B1), other Short Term (foreign currency) ratings at P(NP).

 

According to the agency,  the country’s low sub-investment foreign and local currency government bond ratings mirror the country’s political and economic challenges. The latter includes a wide twin deficit and the second highest level of general government debt to GDP versus the remainder of rated countries, the report said.

 

Although growth has been rapid in recent years, structural challenges continue to limit the country’s long term potential. Further, growth remains vulnerable to political shocks both domestic and external.

 

Lebanon’s ratings are boosted by several factors. First the Central Bank high level of foreign exchange reserves and gold which bolsters confidence in the exchange rate peg and the financial system despite the weak public finance. Second is the ongoing willingness of commercial banks the government primary creditors to purchase and roll the government debt given their significance fund resources. Third the bank depositors, including those of the Lebanese Diaspora have displayed a remarkable resilience to political shocks over the years, it said.

 

Indeed, the government has had a strong willingness to service its debt and has never defaulted despite numerous political and economic crises. It has also a track of mobilizing donor support.

 

Recently external donors pledged $7.5 billion in grant and soft loans at Paris III donors' conference in January 2007, of which $1.6 billion was received for direct budgetary support. The balance of payments is structurally weak but reinforced by inward remittances from the large number of workers abroad.

 

The outlook of Lebanon’s sovereign ratings is stable within the contest of the reassuring high level of Central Bank foreign exchange.Yet, Moody’s remains wary of the country’s fragile politics and weak public finances. Therefore, it’s worth noting that Lebanon’s sovereign ratings are already low and encapsulate substantial downside risks, the report added.

 

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