International credit rating agency Standard & Poor’s (S&P) on Monday, Sept. 18, lowered its credit ratings for Lebanon and three of the country’s largest banks due to the continued deterioration in public finances.
The agency has also lowered its rating on Lebanon’s long-term foreign-currency debt by one level to B+ from BB-. It also downgraded its ratings for Banque Audi, Banque de la Mediterranee and BLOM in line with the country downgrade, thus making lending operations more expensive.
Lebanon’s Daily Star reports that the S&P decision represents the second segment of bad economic news for Lebanon in as many days. Donor countries decided last Sunday to postpone a conference aimed at raising $1.2 billion for the government’s plan to rebuild the South. The decision implies that the agency regards Lebanese foreign-currency eurobonds as a riskier investment than before.
S&P explained that the reasons for the downgrade included Lebanon’s continually high budget deficits and expanding public debt, which presently exceeds $21 billion. This is equivalent to about 140 percent of GDP, one of the highest ratios in the world. The agency added the downgrade also reflected “the risk that the new government, expected to be formed by November and headed by former Premier Rafik Hariri, will be slow to address the deteriorating fiscal situation.”
Local financial experts have been quick to defend the current government’s policies, claiming that the withdrawal of Israeli forces from the South and the parliamentary elections had delayed some of the fiscal reforms. S&P forecast that the government would run a budget deficit equivalent to about 16.5 percent of GDP this year, larger than its 15.5 percent target.
Another factor in the downgrade was the government’s decision not to accept a $2.7 billion offer from Cellis and LibanCell in exchange for mobile phone licenses. S&P also said it was unlikely that Parliament would approve a value-added tax law in time to introduce VAT by the January 1, 2001 target date.
A downgrade from S&P will probably make it more expensive for Lebanon and its banks to obtain debt financing from international capital markets in the future. Nevertheless, the Finance Ministry still intends to issue a short-term eurobond within the next two weeks. Lebanese banks are inclined to purchase the majority of the new issue.
Moody’s, another international rating agency, announced earlier this month that it might downgrade its B1 local-currency debt rating for Lebanon because of the poor state of the public finances. –(Albawaba-MEBG)
