Following a similar move by S&P mid-year, Moody’s Investors’ Service put on review the B1 domestic currency debt rating assigned to Lebanon for possible downgrade in the future.
The credit rating agency cited Lebanon’s burdensome domestic debt servicing obligations and the narrowing window of opportunity to redress the situation, as factors in prompting the review.
The medium-term outlook on the growth of the debt and its servicing, according to Moody’s, “remains a matter of serious concern”. Moody’s concern comes despite what it notes as the flexibility afforded to the government by its “ability to finance the fiscal deficit and roll over its domestic debt obligations through a well capitalized and highly liquid banking sector”.
The credit rating agency views it as likely that the government will miss its deficit target for this year, of around 37 percent of expenditures, creating greater financing pressures for it. As such, Moody’s believes that it has “become all the more critical for the authorities to expedite the privatization program in order to generate receipts that can be used to lower the debt stock”.
Moody’s review will be undertaken over the next few months and will focus on the new government’s ability to generate the political support to: Expedite privatization, maintain a prudent fiscal policy stance in the face of pressures to stimulate growth in a stagnant economy, and in particular to maintain the primary surplus that is likely to be achieved this year (and which must be sustained for a considerable period of time in order to stabilize the debt level), implement VAT and other reforms that are also necessary to support fiscal stabilization.
At the same time, Moody’s changed the outlook on Lebanon’s foreign currency country ceilings for bonds and bank deposits, standing at B1 and B2 respectively, to negative from stable. The agency attributed the move to concern over a possible spillover effect of potential domestic debt problems impacting the management of foreign currency obligations. — ( Banque du Liban et d'Outre-Mer Sal )
© 2000 Mena Report (www.menareport.com)
