Lebanon pays back $1.5 billion Eurobond amid economic crisis

Move ended concerns that Beirut would default on its debt

Riot police stand guard during ongoing protests against the Lebanese government, in front of the Central Bank, in Beirut, Lebanon, Thursday, Nov. 28, 2019. Lebanon paid back a Eurobond worth $1.5 billion that was scheduled to mature Thursday, a Finance Ministry official said, pacifying concerns of a first-ever default on its debt amid the worst financial crisis in three decades. (AP Photo/Bilal Hussein)
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Lebanon paid back a Eurobond worth $1.5 billion that was scheduled to mature on Thursday, a Finance Ministry official said, ending concerns that it would default for the first time on a debt amid the worst financial crisis in three decades.

The country’s economic emergency ignited nationwide protests against widespread corruption and mismanagement, bringing the country to a standstill for more than a month.

The protests were sparked by new taxes but have grown into calls for the entire political elite to step aside.

Prime Minister Saad Hariri resigned in late October, meeting a key demand of the protesters.

But that plunged the country into further uncertainty, with no clear path to resolving its economic and political problems.

The Eurobond announcement came as a top Arab League official arrived in Lebanon, expressing readiness to help the country solve its political stalemate.

The repayment was being widely watched in Lebanon, which has one of the highest debt ratios in the world, at $86bn or 150 per cent of GDP.

There were concerns that Lebanon, which always paid back its debt on time, might default. Lebanon has in recent weeks imposed unprecedented capital controls.

The Finance Ministry official gave no further details about the repayment. Local media and analysts said it was made from the reserves of the Central Bank.

“This is a positive message to international ratings agencies and lenders that Lebanon did not default in the past and will not default in 2020,” economist Ghazi Wazni said.

Mr Wazni said Eurobonds worth $2.5bn were scheduled to mature next year. The first payments will come due in March and will be worth $1.3bn.

This month, International ratings agency Standard & Poor’s downgraded Lebanon’s credit rating to ‘CCC/C’ from ‘B-/B’.

The agency said the outlook for Lebanon was negative and “reflects the risk to the sovereign’s creditworthiness from rising financial and monetary pressures tied to widespread protests and the resignation of the government".

This year, Fitch Ratings downgraded Lebanon’s long-term foreign currency issuer default rating to CCC from B-.

Moody’s downgraded Lebanon’s issuer ratings to Caa1 from B3 while changing the outlook to stable from negative.

The office of Lebanese President Michel Aoun said he discussed political and economic conditions with visiting Arab League assistant secretary general, Hossam Zaki.

Mr Aoun has not set a date for binding consultations with heads of parliamentary blocs to decide on a new prime minister.

Mr Hariri, who favoured by Mr Aoun and the militant group Hezbollah to lead a new Cabinet, withdrew his candidacy on Tuesday.

Politicians have failed to agree on the shape and form of a new government. Mr Hariri insisted on leading a government of technocrats, while his opponents, including Hezbollah, want a Cabinet made up of experts and politicians.

Meanwhile, the protesters are demanding that the country’s ruling elite be replaced, blaming them for failures in years that followed the 1975-90 civil war.

The protests have remained overwhelmingly peaceful, using road closures and other tactics to pressure politicians into responding to their demands.

But in recent days, scuffles broke out in Beirut and other areas between protesters and supporters of Mr Aoun and Hezbollah, leaving dozens of people injured.

As tempers flare, there are real concerns that Lebanon could be sliding towards a prolonged period of instability.

“The current situation cannot take conditions and counter-conditions. We should all work together to get out of the crisis in what serves the interest of the Lebanese people,” Mr Aoun said  on Thursday.

He said that Arab support “should be translated into actual steps regarding assistance to improve the deteriorating economic conditions".

Mr Zaki said a solution must be found to forming a Cabinet.

“It is important so that Lebanon avoids negative effects on its economic conditions and civil peace,” he said.

Scores of Lebanese businesses have closed in recent months and thousands of employees were laid off or received only half of their salaries amid the crisis.

Local banks have imposed capital controls, worsening the economic conditions amid a liquidity crisis and shortage in US dollars.

Since 1997, the Central Bank has kept the pound stable at 1,507 to the dollar thanks to heavy borrowing at high interest rates.

But on the black market, the price of the dollar in recent days reached 2,100 pounds, 40 per cent over the official price.

The private sector had planned a strike on Thursday but later suspended it, while petrol stations started an open-ended strike, protesting against shortages of dollars to cover their imports.

Exchange shops will also hold a one-day strike on Saturday to protest against accusations that they are behind the rise of the dollar against the local currency.

Late on Thursday, scores of protesters held a sit-in outside the Central Bank in Beirut blaming governor Riad Salameh’s policies for worsening economic and financial conditions in the country.