Moody’s latest downgrade to prevent Lebanon’s access to int’l markets

Xinhuanet | August 3, 2020

Moody’s latest downgrade of the Lebanese government’s issuer rating will prevent Lebanon from accessing the international markets or attracting new investments into the country, local experts said.

On July 27, Moody’s Investors Service has downgraded Lebanon’s issuer rating to C from Ca.

The C rating reflects Moody’s assessment that the losses incurred by bondholders through Lebanon’s current default are likely to exceed 65 percent.

Nassib Ghobril, an economist and head of the economic research department at Byblos Bank, told Xinhua that this downgrade will make it hard for Lebanon to access international markets.

“We have witnessed on March 7 a default on Eurobonds while negotiations with the International Monetary Fund (IMF) were halted and negotiations with Eurobonds holders did not even start yet,” Ghobril explained.

Lebanon defaulted earlier this year on its public debt which exceeds 90 billion U.S. dollars, noting that around a third of Lebanon’s 30 billion dollars of Eurobonds are held by foreign investors, with the rest owned by the central bank and local lenders.

Lebanon has been trying to negotiate with the IMF a strategy to implement structural reforms in the country and restructure the country’s public debt, but negotiations were halted due to disagreement among different political parties about the plan that should be adopted to introduce necessary reforms.

“We will not have any access to international markets without an agreement with the IMF,” Ghobril said.

“Organizations, such as the International Finance Corporation, European Investment Bank or developments funds and private investors, will not pay a penny in Lebanon amid current lack of confidence in the system,”he added.

Patrick Mardini, president of the Lebanese Institute for Market Studies, said that this new downgrade will increase lack of confidence and trust by foreign investors in Lebanon.

“This will, in turn, put more pressure on the exchange rate of the dollar to the Lebanese pound since we won’t be witnessing any inflow of foreign currencies from foreign investors into the country,” Mardini told Xinhua.

“This will prompt the central bank of Lebanon to print more money to finance the government’s expenses,” the expert added.

Lebanon’s shortage in dollar prompted an increased demand on the currency which resulted in a rise in its price and the weakening of the Lebanese pound.

Experts have, on many occasions, urged the cabinet to implement long-term reform measures to stop the deterioration of the Lebanese pound.

Measures include encouraging consumption of local products, reducing the import of non-essential goods and focus on local production.

On the supply side, Lebanon needs to attract more dollars into the country through more exports, tourism, remittances and most importantly, foreign aid from international organizations amid the current lack of confidence. 

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