Lebanon to start issuing local currency debt at market rates: cbank

Lebanon’s central bank said on Tuesday the government would start issuing local currency debt at market rates to encourage banks to buy the debt, rather than putting their money in the central bank for more attractive rates.

“The state now will issue bonds as the central bank does, with rates similar to those of the central bank,” Central Bank Governor Riad Salameh told Reuters, adding that the Bank of Lebanon’s benchmark ten-year rate is 10.5 percent.

Highly-indebted Lebanon’s financial system has encouraged commercial banks to place foreign currency in the central bank for high returns, as Salameh seeks to maintain high foreign reserves to defend the Lebanese pound’s peg to the dollar as the economy stagnates and a political stalemate drags on.

As a result, commercial banks have gradually stopped subscribing to weekly treasury bill auctions.

This means the central bank has been left to buy up government debt – incurring losses on the difference between the interest it receives on this and the high interest rates it pays out to commercial banks to keep money flowing in.

Salameh said he and Finance Minister Ali Hassan Khalil had on Tuesday agreed a plan to attract funding for government debt issuances and said Lebanon’s banking sector is capable of financing the state’s foreign and domestic debt in 2019.

“We agreed this system for paying foreign and domestic debts is within our capabilities and within the capacities available to the banking sector,” Salameh said in televised remarks after meeting Khalil. (RTRS)