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Lebanon Must Speed up Govt. Formation or Face Painful Economic Repercussions

Lebanon Must Speed up Govt. Formation or Face Painful Economic Repercussions

Wednesday, 23 January, 2019 - 09:00
A general view of the Beirut skyline. (AFP)
Beirut - Ali Zeineddine
Moody’s decision to downgrade Lebanon’s credit rating to Caa1 from B3 was enough Tuesday to spur political forces to double their efforts to overcome the obstacles hindering the birth of a new government.

It is most likely that Moody’s report could be quickly followed by similar ratings from other financial institutions and international agencies, accelerating risks and therefore, inflating the cost of interests and insurance on equity and on Lebanese bond issues for the private and public sectors.

A leading banking official told Asharq Al-Awsat he expected the occurrence of rapid and painful rebounds in the financial markets, particularly at the Beirut Stock Exchange and in eurobonds trading.

Caretaker Finance Minister Ali Hassan Khalil was quick to respond, saying that the financial and monetary situation in Lebanon was stable and that the Treasury needs were available, despite Moody’s report.

Khalil also highlighted the need to form the government in the nearest time possible in order to launch necessary reforms, a demand echoed in the rating agency’s report.

Moody’s said the formation of a government is essential to draft plans to reduce spiraling debt and narrow the widening fiscal deficit.

Lebanon’s dollar-denominated sovereign bonds came under pressure Tuesday after Moody’s report on worries about a possible debt default, Reuters said, citing Tradeweb data.

A banking official said that Lebanon’s markets were more sensitive to any new signals, including reports and comments.

Other bankers said that controlling markets was not absolute. They said interbank rates for the Lebanese pound reached 75 percent a few days ago, the highest rate since a political crisis late last year, forcing commercial banks to contain the reactions of savers and dealers with expensive and undesirable measures.

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