The American rating agency Standard & Poor’s (S&P) has maintained Lebanon’s foreign currency bonds rating at SD/SD and its Lebanese pound-denominated debt securities rating at CC/C, with a steady negative long-term outlook.
The agency attributed the negative outlook on the pound-denominated debt to the potential restructuring of this debt by the Lebanese government. It stated in its report on Monday that the implementation of reforms conducive to economic recovery remains “unstable due to the ongoing political stagnation in Lebanon.”
Standard & Poor’s mentioned the issue of the presidential vacuum that’s been ongoing for 16 months and the presence of a caretaker government, questioning the Cabinet’s ability to implement the necessary reforms required by the International Monetary Fund (IMF). In that same context, S&P also indicated that the debt restructuring project will most likely not be carried out. The rating agency believes that the conflict in Gaza has increased political tensions and security-linked threats in Lebanon.
Furthermore, S&P noted that the macroeconomic crisis has resulted in a significant decline in the scale of the Lebanese economy, which dropped from $53 billion in 2017 to around $16 billion in 2023. The agency also predicted that the Gross Domestic Product (GDP) per person fell from approximately $7,800 in 2017 to around $3,000 in 2024.
Standard & Poor’s expects the GDP to contract by 0.2% in 2024, compared to a similar contraction rate of 0.2% in 2023 and a contraction of 0.6% in 2022. In this context, the rating agency highlighted that a slight recovery in economic activity within the private sector and in tourism will bolster economic growth during the period extending between 2025 and 2027.
Economically, the agency pointed out that the 2024 budget, approved last January, lacked fundamental reforms such as those required by the IMF. Consequently, it must be revised to improve revenue collection (updating tax brackets and certain fees to offset the depreciation of the Lebanese pound against the dollar in the parallel market).
Meanwhile, Standard & Poor’s disclosed that the Lebanese government will not issue Treasury bonds in the first quarter of 2024, noting that the Lebanese Central Bank (BDL) has not participated in these calls for tenders since the second half of 2022. Overall, it is foreseen that the debt-to-GDP ratio will reach around 285% in 2023, up from 160% in 2019.