Prospect of lower debt burden uncertain despite political progress
Lebanon's credit rating unchanged by S&P
S&P Global Ratings has kept its foreign and local currency sovereign credit rating for Lebanon unchanged, a week after the country's credit score was trimmed by fellow ratings agency Moody's.
"Lebanon continues to show modest progress in normalizing its divided political system, as evidenced by the adoption of the new electoral law in June this year," said S&P in its rating announcement.
"Still, we anticipate that the general government debt burden will remain very high through 2020."
The rating agency kept its B-/B score for Lebanon unchanged, and maintained its stable outlook on the country, saying that inflows of deposits will remain steady over the next 12 months to support the government's borrowing needs and external deficit.
"In our analysis, the Lebanese government's debt-servicing capacity depends largely on the domestic financial sector's willingness and ability to add to its holdings of government debt, which in turn relies on bank deposit inflows, particularly from non-residents, and also on central bank financing," the rating agency said.
"This structural weakness constrains the ratings, as do Lebanon's divided political environment and regional tensions. These factors have, in turn, hindered economic outcomes and public finances, to which consistently large fiscal deficits, as well as high, and rising public debt attest."
S&P noted that Lebanon, after Japan and Greece, has the highest government debt at an estimated 148 per cent of gross domestic product among the sovereigns it covers.
Among other challenges, Lebanon's economy has come under pressure in recent years from the presence of over 1 million refugees fleeing Syria's civil war.
Lebanon's B-/B rating is a speculative rating also known as junk by investors. Despite the rating, the economy is supported via Lebanese expatriates sending money back home to support extended families and to get interest on the US dollar that is higher than one would typically get elsewhere.
One fourth of the country's bank deposits, of which about 60 per cent are in US dollars, are sourced from Lebanese expats.
Lebanon swore in a new government in December following a two year caretaker regime. The country's parliament is expected to pass its first budget since 2005 in the coming weeks, with several major tax reforms announced to tackle the country's deficit.
Moody's last week downgraded its long-term issuer ratings for Lebanon, saying that while a return to a fully-functioning political government was a positive move, it was too early to say whether proposed reforms would lift the country's finances.