Fitch IBCA downgrades Lebanon ratings; outlook stable from negative
Fitch IBCA said Friday, February 2, it downgraded its long-term foreign and local currency ratings on the Republic of Lebanon and changed its outlook to stable from negative. In a statement received by AFP in Nicosia, the ratings agency said it cut the long-term foreign currency rating to B+ from BB- and the long-term local currency rating to B+ from BB.
In both cases, the downgrade was prompted by "deterioration of an already serious fiscal imbalance and an escalating public debt stock — the highest in relation to GDP of any sovereign rated by the agency." However, Fitch IBCA said its removal of the negative outlook, which had been assigned in September 2000, "acknowledges the new government's intentions to modernize and liberalize the economy —including privatisation — and to introduce a number of fiscal measures."
The agency said preliminary data show that Lebanon's 2000 fiscal deficit widened to around 24 percent of gross domestic product (GDP) from 16 percent a year earlier. While the recently approved budget would reduce the deficit to around 20 percent of GDP in 2001, this would still leave general government debt rising from 135 percent of GDP at end-1999 to around 165 percent by end-2001.
Fitch IBCA noted that the continued weakness of the economy, with a 0.5 percent contraction in GDP last year — had led the government of Prime Minister Rafiq Hariri to adopt measures to reactivate growth, including cuts in import duties. It said it generally supports lower trade barriers, but also pointed out that customs revenues accounted for 38.5 percent of total Lebanese fiscal receipts in 2000.
It added that some previously proposed budgetary measures — notably a cut in the civil services wage bill and introduction of value-added tax —had been postponed until at least next year. The agency noted that a number of revenue-raising measures have been advanced and are welcome, and that the budget also assumes further progress in curbing the high rate of personal and corporate tax evasion. Additionally, it said the government hopes that a range of recently introduced micro-economic measures will improve household and business sentiment and stimulate growth.
However, "if this growth does not appear, there would be a downside risk to the budget projections, as in previous years. "Similarly, privatization —which could significantly help restrain the growth of public debt — has in the past proceeded more slowly than planned. The new government intends to speed up the sales, but the timing and the amounts to be realized inevitably remain uncertain."
Fitch IBCA noted that Lebanon's foreign currency ratings "continue to derive important support from a well-managed external debt, still strong external liquidity and the willingness of Lebanese investors and thers to lend assistance." Similarly, it said the "local currency ratings are supported by the demonstrated ability of the government to roll over its obligations, helped by a well-capitalized and high liquid banking sector." Anticipated privatization of the electricity sector in 2002 and the introduction of VAT should help to address the weak fiscal position, it said. Such measures are becoming "increasingly urgent," the agency said, adding that it will be monitoring progress in this area particularly closely. —(AFP)
© Agence France Presse 2000
© 2001 Mena Report (www.menareport.com)