Lebanon finance minister says 'no' to restructuring debt

Caretaker finance minister also said there would not be reconsideration of the fixed exchange rate

Lebanon's caretaker finance minister Ali Hassan Khalil said recommendations under consideration may include some debt rescheduling, as well as spending cuts and tax and electricity reforms. Reuters

Lebanon’s plan to shore up its strained finances doesn’t include debt restructuring or any reconsideration of the fixed exchange rate, according to the caretaker finance minister.

The recommendations under consideration may include some debt rescheduling, as well as spending cuts and tax and electricity reforms, Ali Hasan Khalil said Friday in an emailed response to questions. If debt is to be rescheduled, it will only be done in coordination with the central bank and local lenders, he said. Lebanese officials have said it’ll probably be locally denominated.

“There is no intention to restructure debt or touch the rights of holders of sovereign debt securities in any way,” Mr Khalil said.

A newspaper report on Thursday cited Mr Khalil as saying that the overhaul would include debt restructuring, comments that sent Lebanese dollar notes plummeting. The country’s credit risk jumped to a record.

Eight months on from an election, Lebanon remains without a government and with billions of dollars in aid untapped as sectarian tensions fester. Political turmoil and sluggish economic growth are prompting questions over how long it can avoid a financial meltdown that would further destabilise an area rattled by war in Syria and tension between Israel and Hezbollah. Lebanon is one of the world’s most indebted countries, with the debt in 2018 amounting to 153 per cent of gross domestic product.

Mr Khalil’s assertions that there will be no debt restructuring echo comments from two ministers on Thursday. “Bondholders and depositors are extremely safe,” caretaker economy minister Raed Khoury told Bloomberg.

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Lebanon agreed to reduce its deficit by 1 percentage point annually for five years as one of the main conditions to unlock $11 billion (Dh220bn) in loans and grants offered at a 2018 donor conference.

The yield on Lebanon’s Eurobonds due in 2028 surged 69 basis points to 11.74 per cent as of 3pm in London, according to data compiled by Bloomberg.

Any potential restructuring of Lebanese debt would see authorities rush to protect the domestic banking sector and depositors, while the main burden would fall on Eurobond holders, according to Amundi Asset Management.

Ministerial comments this week “showed there is clearly a lack of coordination within the government as well as no unified strategy on how to deal with the financing issue as they are facing three Eurobond maturities in 2019 worth total of $2.65 billion”, said Ray Jian, London-based portfolio manager and head of emerging markets aggregate debt at Amundi Asset Management.