French investment bank BNP Parisbas has publicly denigrated the Lebanese economy, reported the Lebanon Daily Star. BNP Paribas, one of the world’s leading investment banks with over 100 billion euros in assets, released the bad news earlier this month.
Pointing to the Lebanese T-bills and eurobonds, BNP Parisbas analyst Dipankar Shewaram, said that interest rates on the local-currency T-bills have dropped more than 2 percent since 1998, and the Lebanese eurobonds offer a low premium over rates on benchmark US debt. He also noted Lebanon’s poor credit rating.
Merrill Lynch and the international credit rating agency Standard & Poor’s (S&P) also came out and lambasted the Lebanese economy, warning investors to stay away. Merrill Lynch, in a report released in September, wrote that investment in Lebanese debt was risky and that “the risk of a sharp devaluation in 2001 is real.” Also in September, S&P penalized the Lebanese government for its poor performance in improving public finances by lowering its long-term foreign-currency rating by one notch.
Most of the investment in Lebanon is facilitated by domestic banks which buy up all the T-bills and eurobonds and safeguard them until maturity, making for slow trade in the paper money. In the long run this may have caused more harm than good. Shewaram wrote in the BNP Parisbas report that because there is little movement in the Lebanese T-bills and eurobonds, that has enabled the Lebanese government to borrow on the international market at lower rates relative to the US debt, suggesting “there is little value in investing at these levels.”
Investors when purchasing government issued bonds and shares seek out those which will provide the greatest amount of profits in the least amount of time (interest rate and maturity). According to Lebanon’s credit rating, the Lebanese eurobond is 150-200 points tighter than the rating calls for. Thus, with the current state of the Lebanese economy and level of foreign debt it will no longer be able to borrow money at such affordable prices.
Shewaram wrote in the report that “The current path of the economy is unsustainable in the long run and measures implemented in the next six months will be crucial and need to be monitored.” –(Albawaba-MEBG)
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