S&P affirms Lebanon’s sovereign credit rating

S&P Global affirmed Lebanon’s sovereign credit rating even as the country’s public debt, already among the highest in the world, is set to rise. Deposit inflows will provide enough support to the country’s economy over the next 12 months, the agency said.

“We anticipate that the general government debt burden will continue to rise from already high levels through 2021, but that deposit inflows will remain sufficient to support Lebanon’s large twin-deficits,” the rating agency said in a report yesterday.

“Lebanon’s general government debt, which we estimate at 140 per cent of GDP in 2017, is the third highest among all sovereigns we rate, after Japan and Greece.”

S&P, which affirmed Lebanon’s “B-/B” ratings with a stable outlook, said the government’s debt-servicing capacity depends largely on the domestic financial sector’s willingness and ability to add to its holdings of government debt. The state in turn relies on bank deposit inflows, particularly from non-residents, and also on central bank financing, it said. Lebanon’s structural and institutional weaknesses have hindered economic outcomes and weakened public finances, as evident from the country’s consistently large fiscal deficits and rising public debt levels. The structural problem constrains the sovereign ratings, according to S&P, as do Lebanon’s divided political environment and political uncertainties in the wider Middle East region.

The country’s Finance Minister last week said Lebanon is trying to get its 2018 budget approved by Cabinet by mid-March, as it seeks to agree its spending plans before upcoming investment conferences. Lebanon aims to win billions of dollars of international investment at a Paris conference next month, as it seeks funding for a 10year, $16-billion capital investment programme aimed at lifting economic growth.