EUROBONDS: SHOULD LEBANON RESPECT THE MARCH 9 DEADLINE ?

If Lebanon has managed to find a fragile balance between wars and crises over the past decades, today, it is facing its worst economic crisis. With one of the highest GDP ratios (166%), the country’s debt increased to $91.64 billion last December. Traditionally, Lebanon used to benefit from an economy that grew faster than its debt. However, today, with the influx of more than one million refugees from neighboring Syria since 2011, and a political paralysis that seems to never end, the country has stalled. And there are no signs of improvement…

HOW MUCH IS DUE ?

Lebanon has $1.2 bn of Eurobonds that will hit maturity on March 9, then another $700 million in April and $600 million in June. There is major controversy around whether we should pay or not. The government, pressurized by the Association of Banks, says that the debt should be honored so that it does not negatively impact Lebanon’s credit status worldwide. Which means limited access to capital markets and foreign currency. Some opponents to the government say we should not pay the upcoming Eurobonds, as it would eat away our foreign currency reserves.

WHAT IF WE DEFAULT ?

If Lebanon defaults on its upcoming obligations, international financial reviewers could downgrade its sovereign ratings further or change the outlook on the country’s currency. Which would push the country further to the cliff edge and have disastrous consequences on its banking and fiscal system. And, the Lebanese Pound, which already lost more than a third of its value against the US dollar on the black market, could come under more pressure. For the creditors, it means that they may not recover all their money.

WHAT ABOUT A BAILOUT BY THE IMF ?

Last week, Lebanon officially asked the IMF for help to overcome its crisis, but did not request a bailout package. Such bailout would most likely require the country to float its currency, forcing major devaluation, implementation of higher taxes and austerity measures. Hence, Nabih Berri said Lebanon should ask for technical help for an emergency plan, rather than surrender.

IS THERE ANY HOPE OF GETTING OUT OF THE CRISIS ?

The reality is: the country and its politicians and officials waited too long to address this major problem. IMF was clear: the country has to help itself before getting help from others. Lebanon already secured pledges for $11 bn from international donors at the 2018 CEDRE Conference in Paris, however, the lack of political will or discipline to reform is not encourage anyone to act upon those pledges… For any type of negotiation to be successful, they need to include a medium term plan that would be credible to all creditors, but also address corruption by trying to get back some of the money that has evaporated over the years. That only will give the government some credibility. That is the light at the end of the tunnel.

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