Spotlight: Lebanon struggles over decision on eurobonds payment

BEIRUT - Debate has recently intensified among Lebanese authorities and experts as the country is struggling to decide what to do about a 1.2 billion US dollars Eurobonds maturing in March.

Lebanon has never defaulted on its debt but the country is currently experiencing an unprecedented financial crisis with a budget deficit estimated at no less than 10 billion US dollars in 2019.

The central bank has for years settled maturing bonds on behalf of the finance ministry but Banque Du Liban (BDL) is currently facing a drop in its foreign reserves caused by economic slowdown amid the nationwide protests.

To make things worse, Lebanon also has to pay 700 million US dollars for bonds maturing in April and another 600 million US dollars for issues maturing in June.

The government is also responsible for settling 2.18 billion US dollars in interest rates on Eurobonds in monthly payments ranging between 33 million to 539 million US dollars.

On the other hand, the drop in central bank’s foreign currency reserves prompted banks to put restrictions on dollar withdrawals with citizens standing in lines for hours to withdraw as little as 200 US dollars a week.

Also, the country barely has the capacity to finance its most essential import needs such as fuel, wheat and medicines.

“The government must prioritize its citizens at this point instead of paying what’s left of US currency to investors,” said economist Hassan Khalil. Khalil said the remaining US currency must be spent on people’s food and medicines. The economist argued that Lebanon is not the first country to default on its debt and it should deal with local and foreign investors alike noting that both local and foreign investors are holders of Lebanese Eurobonds.

Some Lebanese officials announced earlier this week that Lebanon should at least settle the cost of maturing bonds to foreign investors which are valued at 2.36 billion US dollars to protect Lebanon’s reputation.

Nassib Ghobril, an economist and head of the economic research department at Byblos Bank, told Xinhua that Lebanon’s history of paying its obligations on time would be under risk if the government does not pay its maturing bonds.

Ghobril explained that defaulting on payment of Eurobonds must happen within a package by the International Monetary Fund (IMF).

“Lebanon is very close to its obligation which is due in March and there is not enough time to go to the IMF to put a clear program for reforms that allows Lebanon to reschedule its debt,” Ghobril said.

Ghobril said the government has three options: pay in full, ask local holders of the issue to swap for longer-dated notes delaying payment by at least 10 years, or simply not pay.

“Avoid paying is a very bad decision,” he said.

In fact, rating agencies have previously warned that even a swap would constitute a selective default.

Sources close to Prime Minister Hassan Diab announced earlier this week that Diab prefers making the March payment on time to avoid any negative impact on the country’s reputation as his government tries to win back the confidence of international donors. (Xinhua)