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Announcement:
Moody's: Lebanon's credit profile reflects its very large public debt burden
22 Jun 2018
New York, June 22, 2018 -- Lebanon's credit profile (B3 stable) reflects challenges stemming from its very large public debt burden, which is among the largest of all the sovereigns that Moody's rates, Moody's Investors Service said in an annual report this week.
The report, "Government of Lebanon -- B3 Stable, Annual credit analysis", is now available on www.moodys.com. Moody's subscribers can access this report via the link at the end of this press release. The research is an update to the markets and does not constitute a rating action.
"Lebanon's interest-to-revenue ratio of 42.9% is the highest of all sovereigns we rate," said Elisa Parisi-Capone, a Moody's Vice President -- Senior Analyst and co-author of the report. "Combined with an average term to maturity of about five years, this underscores the sovereign's very high sensitivity to further interest rate rises."
Lebanon's low economic strength score incorporates the country's moderate per capita income levels, its subdued growth prospects, small size and vulnerability to external shocks. Lebanon's growth trend has been deeply affected by the deterioration in the regional economic and political environment.
After growth of about 1.9% in 2017, Moody's forecasts that the economy will expand by 2.5% in 2018 and 3% in 2019. This is based on expectations of greater economic policy coordination, the winding down of the open conflict in Syria and the expected implementation of the CEDRE investor conference commitments.
Lebanon's low institutional strength reflects the country's weak government effectiveness according to the Worldwide Governance Indicators. However, its record of debt service under difficult conditions provides some support to its institutional strength.
Prime Minister Saad Hariri has pledged to reduce the fiscal deficit by one percentage point of GDP over the next five years in return for investment project disbursements under the CEDRE conference, which garnered commitments worth over $11 billion for the next five years.
The pace of implementation of these policy reforms by the incoming government that will once again be led by Saad Hariri as prime minister, will allow Moody's to assess government effectiveness going forward.
Lebanon's public finance metrics are characterized by a very high debt burden and large fiscal deficits, which are a key credit challenge.
In Moody's central scenario, the very high debt-to-GDP ratio of 142.1% continues to increase despite our forecast of consistent primary surpluses in response to the interest - growth differential.
While its credit profile is supported by resilient bank deposits that fund the government's financing needs, the reliance on external partners for security, economic, and financial support exposes the country to various sources of event risk.
Lebanon's credit strength include a resilient bank deposit base, supported by remittances and cross-border transfers from the Lebanese diaspora abroad. The sovereign has also established a history of full and timely debt repayment despite severe economic and political turmoil domestically or in the region.
The stable outlook takes into account Lebanon's significant foreign exchange buffers, which have proven resilient to political turmoil in recent years. Moody's would downgrade Lebanon's rating in case of a sustained easing in deposit inflows, which suggested a heightened risk of a balance of payments crisis and which threatened the banking sector's ability to continue to finance the government.
Conversely, Moody's would upgrade Lebanon's rating if fiscal reforms were to result in a stabilization - followed by a durable reversal - in the debt trajectory.
Moody's: Lebanon's credit profile reflects its very large public debt burden
22 Jun 2018
New York, June 22, 2018 -- Lebanon's credit profile (B3 stable) reflects challenges stemming from its very large public debt burden, which is among the largest of all the sovereigns that Moody's rates, Moody's Investors Service said in an annual report this week.
The report, "Government of Lebanon -- B3 Stable, Annual credit analysis", is now available on www.moodys.com. Moody's subscribers can access this report via the link at the end of this press release. The research is an update to the markets and does not constitute a rating action.
"Lebanon's interest-to-revenue ratio of 42.9% is the highest of all sovereigns we rate," said Elisa Parisi-Capone, a Moody's Vice President -- Senior Analyst and co-author of the report. "Combined with an average term to maturity of about five years, this underscores the sovereign's very high sensitivity to further interest rate rises."
Lebanon's low economic strength score incorporates the country's moderate per capita income levels, its subdued growth prospects, small size and vulnerability to external shocks. Lebanon's growth trend has been deeply affected by the deterioration in the regional economic and political environment.
After growth of about 1.9% in 2017, Moody's forecasts that the economy will expand by 2.5% in 2018 and 3% in 2019. This is based on expectations of greater economic policy coordination, the winding down of the open conflict in Syria and the expected implementation of the CEDRE investor conference commitments.
Lebanon's low institutional strength reflects the country's weak government effectiveness according to the Worldwide Governance Indicators. However, its record of debt service under difficult conditions provides some support to its institutional strength.
Prime Minister Saad Hariri has pledged to reduce the fiscal deficit by one percentage point of GDP over the next five years in return for investment project disbursements under the CEDRE conference, which garnered commitments worth over $11 billion for the next five years.
The pace of implementation of these policy reforms by the incoming government that will once again be led by Saad Hariri as prime minister, will allow Moody's to assess government effectiveness going forward.
Lebanon's public finance metrics are characterized by a very high debt burden and large fiscal deficits, which are a key credit challenge.
In Moody's central scenario, the very high debt-to-GDP ratio of 142.1% continues to increase despite our forecast of consistent primary surpluses in response to the interest - growth differential.
While its credit profile is supported by resilient bank deposits that fund the government's financing needs, the reliance on external partners for security, economic, and financial support exposes the country to various sources of event risk.
Lebanon's credit strength include a resilient bank deposit base, supported by remittances and cross-border transfers from the Lebanese diaspora abroad. The sovereign has also established a history of full and timely debt repayment despite severe economic and political turmoil domestically or in the region.
The stable outlook takes into account Lebanon's significant foreign exchange buffers, which have proven resilient to political turmoil in recent years. Moody's would downgrade Lebanon's rating in case of a sustained easing in deposit inflows, which suggested a heightened risk of a balance of payments crisis and which threatened the banking sector's ability to continue to finance the government.
Conversely, Moody's would upgrade Lebanon's rating if fiscal reforms were to result in a stabilization - followed by a durable reversal - in the debt trajectory.
