BDL: Eurobond issue plans not new ‘financial engineering’
Finance Ministry to receive $1.7 billion worth of Treasury bills in debt swap
BEIRUT: Lebanon’s Central Bank said a planned $1.7 billion debt swap between it and the Finance Ministry did not represent another round of the “financial engineering” it carried out in 2016 to boost foreign currency reserves.
Lebanon’s Finance Ministry is to issue $1.7 billion in Eurobonds to the Central Bank in exchange for an equivalent amount of Treasury bills, two ministry officials told Reuters Monday.
Central Bank Governor Riad Salameh told Reuters last month the bank’s foreign reserves were at a record high of around $44 billion, despite the war in neighboring Syria that has battered Lebanon’s economy and domestic political tensions.
Last year the Central Bank undertook what it and the International Monetary Fund have called “unconventional” financial engineering, to increase foreign exchange reserves, maintain the U.S. dollar peg and raise banks’ capital reserves.
First the Central Bank exchanged some of its holdings of pound-denominated debt for dollardenominated Lebanese Eurobonds from the Finance Ministry to the tune of $2 billion.
Commercial banks were then asked to transfer dollars to the Central Bank and in exchange were given the Eurobonds and newly issued certificates of deposit in dollars.
In addition, to encourage the commercial banks, the Central Bank bought pound-denominated bonds held on local banks’ books from them for the full principal amount in addition to the interest that the lenders would have made had they held them to maturity, boosting their local currency reserves.
Economists have told Reuters there is no evidence yet that this debt swap would be followed by the steps seen in last year’s engineering.
There is no evidence this swap will be followed by the steps seen last year
Nassib Ghobril, chief economist at Byblos Bank, said the planned $1.7 billion issue was part of measures taken by the Finance Ministry and Central Bank to improve the public debt profile, reduce debt servicing costs, and maintain debt stability.
He added that the Finance Ministry had swapped $2 billion in Eurobonds with the Central Bank last year.
Lebanon’s political problems have prevented the government from making necessary reforms, leaving the Central Bank as the key player in efforts to maintain economic stability. –