Lebanon: Two Steps Back

Qatar’s announcement that it would buy up $500mn in Lebanese government bonds was the only ‘positive’ headline to come out of the tumultuous Arab League economic summit in Beirut last week, but even that break in the clouds was fleeting. Just hours later on 21 January, ratings agency Moody’s provided Lebanon’s embattled economy with yet another blow, downgrading its sovereign rating to Caa1 – seven notches below ‘junk’ status – and evoking the ominous ‘D-word’ (default) in the process.

Moody’s based its decision on a “heightened risk that the government’s response to increased liquidity and financial stability risk will include a debt rescheduling or other liability management exercise that may constitute a default under Moody’s definition,” adding that “a default may be avoided if, upon its formation, a new government takes some fiscal consolidation measures that unlock the CEDRE public investment package.” (CONTINUED - 344 WORDS)