Spotlight: Lebanese economists dismiss Moody's warning of rescheduling debt

Source: Xinhua| 2019-07-01 23:22:00|Editor: yan
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by Dana Halawi

BEIRUT, July 1 (Xinhua) -- Lebanese economists dismissed on Monday a recent warning from the Global credit rating agency Moody's that Lebanon may risk rescheduling its debt because of slow capital inflows and weaker deposits growth.

"Lebanon is solvent and it does not need to reschedule its debt. The country is paying its debt servicing obligations on time," Nassib Ghobril, head of the economic research department at Byblos Bank, told Xinhua.

Lebanon "has also paid maturing Eurobonds of 500 U.S. million dollars in April and other bonds of 650 U.S. million dollars in May," Ghobril added.

Moody's said on June 27 that Lebanon may have to reschedule its debt despite the measures taken to reduce its deficit in the 2019 state budget.

"Lebanon may have to reschedule its debt because of the slowdown of capital flows to the country and the decline in deposits growth," it noted.

Moody's report prompted Lebanese Finance Minister Ali Hassan Khalil to announce that the financial situation in Lebanon is under control.

Ghobril agreed that Lebanon is far from reaching this conclusion, as "this is not the first time our deposits growth slow down."

But the country should work on improving its public finance, he said.

"We need to do our work seriously by reducing our fiscal deficit and borrowing needs but we will not reach such an alarming point," the Lebanese economist explained.

Ghazi Wazne, also an economist, said Lebanon has the capacity to pay its dues in 2019 and 2020.

"Moody's report is just a warning to Lebanese authorities that they should implement more serious reform measures to reduce public debt and budget deficit which would attract investors and depositors again," he told Xinhua.

According to the two economists, Moody's warning was perhaps triggered by what Khalil said at the beginning of this year that the finance ministry was planning to restructure Lebanon's public debt, causing confusion and concerns among the public.

"We gave Moody's the opportunity to declare this after the vacuum created in Lebanon because of the absence in government for over seven months, in addition to announcements by our finance minister about the possibility of a debt restructuring," Ghobril noted.

Wazne also said Moody's did not forget about the finance minister's announcements at the beginning of this year.

However, Qatar's investment worth 500 million dollars has sent a message of confidence to foreign investors and depositors, he added.

A Qatari official said on June 30 that the Gulf state had bought some of the Lebanon's bonds which, according to Refinitiv data, led to the rise on Monday of dollar-denominated bonds issued by Lebanon's government.

Lebanon is currently the third most indebted country in the world after Japan and Greece with a public debt equivalent to 138.8 percent of GDP in 2018.

The government has been calling for more support from banks by subscribing to Treasury Bills at a non-market rate of 1 percent in a bid to reduce the cost of debt servicing which could reach 58.6 percent of the government revenues by 2021 if the fiscal deficit maintained the same momentum, according to Moody's Investors Service.

Lebanon's parliament is currently discussing the 2019 state budget with promises to reduce budget deficit to 7.6 percent of GDP.

The 2019 state budget is also seen as Lebanon's lifeline to secure 11 billion dollars in loans and donations approved last year by the CEDRE Conference organized by France last year on condition that the country implements key reforms to curb its public debt.