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22 January 2020
ECONOMY

Lebanon’s default likely after March 2020 bond, says Oxford Economics

The country’s financial system is crumbling as the flow of remittances that have kept the economy afloat slows

A comprehensive economic plan is critical to crystallise a foreign financing envelope/Shutterstock

by Bloomberg

Oxford Economics said that Lebanese authorities will be reluctant to announce a default on debt payments until a functioning government is formed, pushing back any plans for a bond restructuring to later this year.

Investors can reap a 13 per cent return if they buy Lebanon’s dollar-denominated note due on 9 March 2020. While there is an 85 per cent probability that those bonds will be repaid at maturity, dwindling foreign-currency reserves mean a default may still be announced in the second half of 2020.

According to Oxford Economics, the chances of Lebanon repaying its $2.1 billion bond maturing in April 2021 are slim.

The recommendation comes after a record slump in the March bond last week last week, fuelled by reports that Lebanese lenders have been selling the instruments to avoid participating in a central bank-initiated voluntary debt swap.

Additionally, Oxford Economics also noted that paralysis in the Lebanese leadership will prompt the Banque du Liban and the caretaker government to delay any decision on a debt restructuring beyond the March 2020 maturity. While President Michel Aoun appointed former education minister Hassan Diab to form a government last month, progress has been slow with protesters demanding a cabinet of experts.

Oxford Economics’ Nafez Zouk, said that the likely strategy, for now, is to buy time, adding that a political vacuum is preventing the coalescence around a credible and comprehensive economic plan. A comprehensive economic plan is critical to crystallise a foreign financing envelope, within which debt restructuring can take place.

Since the resignation of Prime Minister Saad Hariri in October 2019, Lebanon faces a debt load that is climbed to more than 150 per cent of economic output.

 


RELATED STORIES: Oxford Economics Banque du Liban Prime Minister Saad Hariri


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