International ratings agency Standard & Poor’s revised Lebanon’s outlook to negative from stable late Friday night.
In a report released on its website, the agency “affirmed our ‘B-/B’ long- and short-term foreign and local currency sovereign credit ratings on Lebanon.”
S&P says it could lower its ratings on Lebanon within the next 12 months if “political stasis causes fiscal deficits to rise while banking system deposit inflows – the government’s key funding source – slow further.”
The report adds that a “drawdown of international reserves at the Central Bank to meet the government’s foreign currency financing needs could test the country’s ability to maintain the currency peg, in our view.”
It adds that the ratings could be lower if the government signals its intention to restructure existing debt, “implying that investors will receive less value than the promise of the original securities.”
In January, Lebanon’s sovereign Eurobonds deviated from their normal rates after Finance Minister Ali Hassan Khalil was quoted as saying that the ministry intended to restructure the country’s public debt.
The sovereign Eurobonds readjusted days later when he brushed off the newspaper article he was quoted in and said he had no intention of restructuring the public debt.
But in Friday’s report, S&P did say that Lebanon’s outlook could be revised to stable if the Lebanese government is able to “advance substantial economic and fiscal reforms that would boost economic growth and reduce government debt levels over the medium term, including addressing the gaps and inefficiencies in the electricity sector and reducing interest costs.”
The report also notes that Lebanon’s net general government debt, projected at 133 percent of GDP in 2019, is the third highest among all the states it rates, after Venezuela and Greece.
S&P anticipates that donor support from Qatar and potentially Saudi Arabia, “alongside Lebanon’s Central Bank servicing of the government’s foreign currency debt, will remain sufficient to support the government’s borrowing requirements and fund the country’s external deficit over the next 12 months.”