In its annual report on Lebanon, Moody's Investors Service says the Middle East country's B2 speculative grade credit rating for foreign currency debt and bank deposits, and its B3 domestic debt rating, are based on significant public sector debt and ongoing budget deficits. Lebanon’s rating outlook is negative.
Lebanon's debt was equivalent to 160.7 percent of its gross domestic product (GDP) at the end of last year, and the country also has structurally high budget deficits, placing constraints on the private sector.
At a 2002 debtor's conference, known as Paris II, the Lebanese government agreed to a series of austerity measures, but Moody's says "the margin for error in achieving these targets is practically zero, and success hinges on the stop-gap financing provided by privatizations and leases of state-owned companies."
The main source of financing in both foreign and domestic currencies is the domestic banking system, which has extremely large assets relative to the size of the Lebanese economy and its 4.4 million people.
The mostly grim financial news for Lebanon includes some positive signs, including the movement of some Persian Gulf investment into Lebanon, resulting in the balance of payments shifting from a deficit to a surplus, and also an increase in tourism from neighboring Arab states. Moreover, financial reserves reached $12.1 million in mid-October 2003 against $4.1 million a year earlier, before the Paris II conference.
The September-to-September data showed a deficit totaling 37.2 percent of expenditure against 39.7 percent last year. The slight decrease in the deficit has been caused by the full-year effect of the introduction of a value-added tax, the adjoining increase in fiscal revenues, and a reduction in the debt-servicing cost following a cut in interest rate after the Paris II conference. — (menareport.com)
© 2003 Mena Report (www.menareport.com)
