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29 March 2020

Lebanon vows economy recovery plan by year-end

The government hired Lazard and Cleary Gottlieb Steen & Hamilton as its financial and legal advisers for what are set to be tough negotiations

The finance ministry told creditors that its total debt was worth around 178 per cent of GDP at the end of 2019/Bloomberg

by Bloomberg

Lebanon commenced talks to restructure its $90 billion debt with a promise to present a comprehensive recovery plan for its ‘ailing’ economy before the end of this year.

The country’s top finance officials said that the economic overhaul would require external funding, but did not set concrete targets for cutting the deficit or restoring growth and spoke only in general terms about the steps required.

The government, however, confirmed the worst analyst estimates about the current state of an economy facing the triple headwinds of a currency crisis and unsustainable fiscal and current-account deficits.

The finance ministry told creditors that its total debt was worth around 178 per cent of GDP at the end of 2019 with the cost of servicing consuming about half the country’s revenues and leaving too little for other needs.

With a dollar crisis gripping the banks last year and weeks of anti-government protests breaking out in October 2019, the economy was estimated to have contracted by 6.9 per cent in 2019. With the added burden of a lockdown imposed due to the COVID-19 pandemic, Lebanon’s economy could contract by about 12 per cent this year, erasing jobs just as currency depreciation is set to elevate inflation to some 25 per cent.

Ghazi Wazni, the Lebanese Finance Minister, said that the Lebanese economic model is broken and necessitates an urgent complete overhaul with a recovery plan enabling Lebanon to start anew.

“This government has a full agenda over the coming months to design and implement its comprehensive recovery plan, and conduct its public debt restructuring,” said Wazni.

Earlier this month, Lebanon decided not to repay its $30 billion of Eurobonds to preserve what’s left of its foreign currency reserve as the country faces its worst financial crisis in decades. The government plans to use its $22 billion reserves to support the import of medicine, fuel and wheat as inflows of hard currency from its expatriate community and elsewhere—the country’s main source of dollars—diminish.

Local banks, who hold most of the country’s dollar-denominated and local debt, have hired Houlihan Lokey to represent them in the talks that will most likely extend a showdown between the lenders and their government.

Potentially complicating talks, London-based fund Ashmore Group has recently built up a blocking stake in some Lebanese bonds. Banque du Liban holds around $5.7 billion of Eurobonds but those holdings will not count in a stakeholder vote to change the terms.

The outbreak of the coronavirus pandemic is likely to hit Lebanon’s struggling economy hard, with restaurants and bars, shops, malls and most offices closed. Many businesses, barely surviving before the coronavirus outbreak, are unlikely to stay afloat if the closures are prolonged.

Unemployment levels are already soaring while the government lacks the resources to offer the kind of fiscal stimulus, extended tax and loan repayment holidays and other support rolled out around the world.

RELATED STORIES: Lazard Ashmore Group Banque du Liban Eurobonds COVID-19 Lebanon Cleary Gottlieb Steen & Hamilton





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