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15 December 2019

Lebanon turns to IMF as Fitch downgrades credit rating

Lebanon has been without a functioning government since Prime Minister Hariri resigned in late October 2019 in the face of mass protests against a political establishment accused of corruption and economic management.

Lebanese caretaker Prime Minister Saad Hariri/Bloomberg

by Kudakwashe Muzoriwa

Lebanon’s caretaker Prime Minister Saad Hariri said that he has discussed with the heads of the International Monetary Fund (IMF) and the World Bank a possible plan to ease a deepening financial crisis, reported Bloomberg.

In a tweet, the office of Prime Minister Hariri said that he asked the two institutions for technical assistance for the plan which would be implemented by a new government. Hariri also asked the World Bank for help in securing trade finance to prevent any shortages of essential goods.

The comments will likely fuel speculation that one of the world’s most indebted countries will eventually ask the IMF for a bailout, a move some Lebanese officials already regard as inevitable. Gerry Rice, the IMF’s Chief Spokesman, said that the IMF is open to support Lebanon’s efforts with technical assistance.

Hariri’s statement came shortly after Fitch Ratings downgraded Lebanon’s credit rating deeper into junk territory, reflecting an increasing likelihood of default.

The rating agency said that the downgrade of Lebanon's ratings reflects that a government debt restructuring or default is probable owing to acute political uncertainty, de facto capital controls and damaged confidence in the banking sector that will deter capital inflows needed for the country to meet its financing needs.

The emergence of a parallel exchange rate and the failure of Banque du Liban to fully service its foreign currency obligations further reflect mounting financial pressure, said Fitch.

Fitch said that a potential agreement with the IMF could support Lebanon’s financial position and mobilise other external financing, but this would almost certainly entail some restructuring of government debt.

Hariri’s announcement comes a day after potential donors met in Paris and urged Lebanese politicians to set aside their differences in order to benefit from international support.

“Lebanon is today in a difficult situation that requires a rapid and determined response from the Lebanese authorities first and foremost, a reaction that must be accompanied by the international community,” said Jean-Yves Le Drian, the French Foreign Minister.

“On the basis of the road map on which we have agreed, now the commitment of the Lebanese authorities is fundamental and must be accompanied by the establishment of a competent government capable of rapidly implementing all the reforms required by the country’s situation,” said Le Drian.

RELATED STORIES: Prime Minister Saad Hariri International Monetary Fund World Bank Banque du Liban Fitch





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