economics

Lebanon Finance Minister Denies He Plans to Restructure Debt

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Lebanon Finance Minister Denies He Plans to Restructure Debt

  • Bonds plummeted after a Thursday report citing Khalil
  • Reform plan may include reschdueling of debt, spending cuts

Hundreds of Lebanese demonstrators stage a rally against the country's political and economic situation as politicians are locked over forming a new government on Dec. 23, 2018 in Beirut. 

Photographer: Jihad Muhammad Behlok/Anadolu Agency/Getty Images

Photographer: Jihad Muhammad Behlok/Anadolu Agency/Getty Images

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,” Khalil said.

A newspaper report on Thursday cited 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 destabilize 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 percent of gross domestic product.

Denials Over Lebanon Restructuring Fail to Calm Investors: Chart

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.

Lebanon agreed to reduce its deficit by 1 percentage point annually for five years as one of the main conditions to unlock $11 billion 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 percent as of 3 p.m. 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.

— With assistance by Selcuk Gokoluk

(Update with analyst comments.)