Sovereign B ratings affirmed

Gross debt equivalent to 139 percent of GDP

The international credit rating agency Capital Intelligence (CI) affirmed a ‘B’ rating on Lebanon’s long- and short-term foreign and local currency debt. It maintained a ‘Stable’ outlook for Lebanon’s ratings.

A 'Stable' outlook reflects the government's track record of meeting its debt obligations during difficult times and the relative financial strength of the banking system. The ratings are constrained by the volatile political and security situation, growing fiscal and current account imbalances, and the very high level of indebtedness. Lebanon is the most indebted of all the sovereigns rated by CI, with gross debt equivalent to almost 139 percent of GDP in 2012.

Refinancing risk remains high. The government is reliant on the domestic banking system for the bulk of its financing in both local and foreign currency. Local banks currently hold about 74 percent of public debt, thus the government would be vulnerable to a political or economic shock that adversely affects the risk appetite of local banks, or the confidence of depositors.

CI said gross financing needs appear to be manageable in the short term. The government should be able to rely on domestic market financing in 2013 with satisfactory, albeit slower, deposit inflows. About $34 billion in foreign reserves at the Central Bank provide a reasonable buffer against moderate external shocks.