Public debt is
under control

Minister of Finance denies

rescheduling following Moody’s warning

The government has responded strongly to a warning issued by Moody’s, the credit rating agency.

Slowing capital inflows and weaker deposit growth increase the risk of debt rescheduling or another liability management exercise that may constitute a default, according to a credit analysis by Moody’s Investors Service. The firm said that this could happen despite the inclusion of fiscal consolidation measures in the draft budget for 2019.

In response, Ali Hassan Khalil, Minister of Finance said: “Matters are under control.” Earlier this year, the Minister had misstated that a rescheduling was inevitable. He meant something else, as he clarified at the time. The market had, as expected, a strong negative reaction, with billions of dollars fleeing the country. It took several weeks to stabilize despite immediate follow-up clarifications.

Riad Salameh, Governor of the Central Bank (BDL), said that the government’s solvency is not at stake. According to Salameh, the country is not expected to face any problems in repaying maturing Eurobonds this year.

Fitch Ratings, another credit rating agency, said earlier this week: “Lebanon's draft 2019 budget targets fiscal consolidation, but we do not expect full implementation, and additional fiscal and structural reforms would be required to stabilize [the] government debt/GDP [ratio].”

Fitch said: “Proposals to issue Treasury bonds at below-market rates, most likely to the Central Bank, reflect the difficulty of cutting spending and tight liquidity in the financial system.”

Salameh said that BDL supports the government’s efforts to reduce the debt servicing costs in the 2019 budget, but that nothing would be imposed on the banks.

Fitch said it expects the 2019 deficit to represent nine percent of GDP. The government had projected a deficit of 7.6 percent of GDP. The credit rating agency said that the government’s revenue projections are optimistic given the country’s marginal economic growth and inefficient tax collection. “Expenditure controls relating to new hiring and bonuses may prove difficult to enact,” Fitch said.