Sovereign Analysis / Lebanon

Lebanon: At the precipice as leaders pass the buck

  • Lebanon is at the precipice as US$ shortages induce hyperinflation and push citizens towards poverty and hunger
  • Much-needed external financing hinges on serious reforms, but the government and banks continue to point fingers
  • Eurobonds are accurately pricing government’s proposals, but downside risks abound

Since officially entering default on 23 March (after announcing on 8 March the intention to not pay the 9 March maturity), Lebanon’s economic and political crisis has spiralled out of control. While protests died down in March amid a Covid-related lockdown, they have roared back amid rapidly rising unemployment, soaring inflation, and a cratering LBP.

President Aoun warned recently of an “atmosphere of civil war” as discontent over the government’s handling of the crisis reaches new highs, while the prospects of poverty, hunger and economic destitution loom large for an increasingly broad swath of the Lebanese population.

In our full report available to Insights Pro subscribers we dissect the evolving crisis and proposed restructuring plans. The report is divided into the following sections:

  • The implosion of the longstanding LBP/US$ peg and its effects on the economy.

  • The prevailing deadlock on the way forward among local stakeholders, prompted largely by disagreements on the size and allocation of losses in the financial sector.

  • Constraints to financing the reform programme, driven by political factors and the government’s failure to commit to reforms.

  • A comparison of reforms outlined by the IMF, government, Association of Banks in Lebanon (ABL) and parliament.

  • Potential restructuring scenarios that will succeed in setting debt on a sustainable downward trajectory while satisfying key stakeholders.

  • Implications for pricing of Lebanese Eurobonds.

The humanitarian costs of the ongoing crisis will continue to mount if Lebanon’s ruling elite fails to agree on a path forward, and they have a moral imperative to accept collective responsibility and quickly implement the reforms necessary to set Lebanon on the path to recovery.

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