Moody : holds Lebanon outlook at negative

06/15/2016 | 03:19am CEST


BEIRUT: International rating agency Moody's said the delay in the implementation of fiscal reforms are among the reasons the negative outlook of the country was maintained.

In its annual assessment of Lebanon, the agency said "the 'negative' outlook on the rating reflects the downside risks from the delay in implementing reforms that would help narrow the fiscal deficit."

Successive Lebanese governments since the assassination of former Prime Minister Rafik Hariri in 2005 have failed to implement real financial and economic reforms despite warnings from the International Monetary Fund and rating agencies that lack of reforms would increase the budget deficit to alarming levels.

"Structural reforms, such as reforming Electricité du Liban and privatizing state-owned companies, have been repeatedly delayed," Moody's said.

However, the agency acknowledged that the Lebanese government has never defaulted on the settlement of maturing bonds despite the political paralysis and weak economic performance.

The Lebanese government never faced a serious challenge and difficulty in meeting its obligations to the banks which hold a big chunk of the state's eurobonods and Treasury bills despite the economic slowdown.

Moody's projected Lebanon's fiscal deficit to widen from 7.7 percent of GDP in 2015 to an average of 8.1 percent of GDP during the 2016-17 period, "due to the transfers of arrears from the Telecommunication Ministry to municipalities in 2016, a higher public-sector wage bill, elevated interest outlays, as well as the lack of fiscal reforms."

It expected Lebanon's fiscal deficit to significantly exceed the median deficit of 4 percent of GDP among 'B'-rated sovereigns.

Lebanon's budget deficit in the first four months of this year rose to 37.2 percent of spending compared to 33.75 percent in the same period last year.

Total government revenues from January through March 2016 rose to LL3.66 trillion ($2.43 billion), an increase of 16.7 percent while total expenditures in the same period reached LL5.838 trillion, an increase of 23.1 percent.

First-quarter revenues from telecoms stood at LL523.861 billion, an increase of 44.2 percent compared to the same period of 2015.

The state's revenues from the value added tax, customs and the income tax also improved.

However, these gains were offset by payments on previous accounts and budgets.

The primary deficit – the balance before debt service – for the period stood at LL604.313 billion compared to primary deficit of LL208.101 billion in the same period of 2015, an increase of 190 percent.

Moody's expected the public debt level, excluding debt owed to public entities, to reach some 135.6 percent of GDP in 2016, which would make it the fourth highest level among rated sovereigns.

The public debt now stands at more than $71 billion.

The agency stressed that Lebanon's 'B2' government bond rating reflects the country's demonstrated fiscal resilience and strong liquidity position, which are supported by a high level of foreign currency reserves and the improved structure of the public debt stock.

The Lebanese Central Bank's foreign currency reserves stand at over$37 billion, excluding the gold reserve which is estimated to have a value of $12 billion.

Experts agree that this significant foreign currency reserve will allow theCentral Bank to weather any unforeseeable financial crisis.

The monetary situation in Lebanon has remained relatively stable since 1993 after Riad Salameh was appointed governor of the Central Bank.

(c) 2016 The Daily Star. All rights reserved. Provided by SyndiGate Media Inc. (, source Middle East & North African Newspapers

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