BEIRUT, Aug 25, 2019 (BSS/AFP) – Analysts warned Saturday that Lebanon
needs to accelerate reforms to revive its floundering economy, a day after an
agency downgraded the Mediterranean country’s credit rating.
On Friday, Fitch bumped Lebanon down to “CCC” while Standard & Poor’s kept
it at “B-/B” with a negative outlook.
“The downgrade reflects intensifying pressure on Lebanon’s financing
model, increasing risks to the government’s debt servicing capacity,” Fitch
said in a statement.
S&P said it could still lower Lebanon ratings over the next year if
banking system deposits and the central bank’s foreign exchange reserves
continued to fall.
“Non-resident depositors and foreign investors will likely remain cautious
of Lebanon unless the government is able to… implement structural reforms
to reduce the large budget gap and improve business activity,” it said.
Growth in Lebanon has plummeted in the wake of repeated political
deadlocks in recent years, compounded by the 2011 breakout of civil war in
neighbouring Syria.
The country’s public debt stands at more than 86 billion dollars, or
higher than 150 percent of GDP, according to the finance ministry.
Eighty percent of that debt is owed to Lebanon’s central bank and local
banks.
Economist Ghazi Wazni said both the Fitch and S&P reports were a warning
of Lebanon’s “difficult economic and financial situation”.
It highlighted the need to reduce the budget deficit including through a
“serious reform of the electricity sector”, as well as fighting tax evasion
and corruption, he told AFP.
Karim Bitar, a Lebanon expert, said Friday’s downgrade came at a time of
low confidence in financial markets.
“One has to hope this sanction will be an electric shock that will jolt
the Lebanese authorities into no longer postponing reforms,” he said.
Lebanon’s finance ministry said the Fitch and S&P reports were “a reminder
of the importance of reducing the deficit and adopting reforms”.
Lebanon has promised donors to slash public spending as part of reforms to
unlock $11 billion in aid pledged at a conference in Paris last year.
Last month, parliament passed the 2019 budget, which is expected to trim
Lebanon’s deficit to 7.59 percent of gross domestic product — a nearly 4-
point drop from the previous year.