Lebanon repaid a $1.5 billion euro bond, buying the country time as speculation swirls over its ability to avoid a default during a political and economic crisis, reported Bloomberg.
The Lebanese finance ministry issued payment instructions to Banque du Liban (BdL), the next bond payment is scheduled for March 2020, when a $1.2 billion eurobond comes due.
Lebanon has never defaulted on its obligations despite struggling under one of the world’s biggest debt burdens, and the central bank had repeatedly said it would cover the $1.5 billion bond. However, weeks of nationwide protests that ousted the government saw credit risk surge and investor confidence slump.
Lebanon is nearing its day of reckoning after years of overspending, borrowing and political paralysis, coupled with the crisis in neighbouring Syria that sent more than 1.5 million refugees into the tiny country.
With a current account deficit of over 25 per cent of its gross domestic product, weak growth and debt that is reached 155 per cent of the economy, the Lebanese central bank tried to maintain financial stability throughout the years and carried out what it called financial engineering. The operation was meant to shore up reserves and raise the capital of local banks, the country’s largest debt holders.
The Lebanese protests were sparked by a government levy on phone calls such as those using the free WhatsApp service along with other tax measures. The demonstrations quickly turned against a ruling class accused of corruption forced Prime Minister Saad Hariri to resign and politicians have been unable to agree on a new name to lead the next government.
Additionally, the Lebanese central bank began rationing dollars even before the unrest ignited, pushing up demand for the foreign currency and causing the Lebanese pound to plummet on the black market.
The move has stymied trade and imports in a country that is almost entirely reliant on foreign goods.
The central bank has said that it would supply dollars to the importers of fuel, wheat and pharmaceuticals and earlier this week added medical equipment to that list of essential goods.