Bloomberg/Hasan Shaabanby Kudakwashe Muzoriwa
Moody’s said that caretaker Prime Minister Saad Hariri’s formal request for technical assistance from the International Monetary Fund (IMF) and the World Bank to develop an economic reform plan to address Lebanon’s fiscal, economic and financial crises is credit positive and reduces the risk of extreme macroeconomic instability.
In a report, Moody’s stated that without technical and financial support from the IMF, World Bank and international donors, a scenario of extreme macroeconomic instability—in which a debt restructuring occurs with an abrupt destabilisation of the currency peg resulting in very large losses for private investors—is increasingly likely.
Lebanese banks' recent implementation of official and unofficial restrictions on foreign-exchange transfers abroad and dollar withdrawals has slowed the drawdown of foreign-exchange reserves and supported the government’s foreign-currency debt service payments.
The increasing foreign-currency shortage for daily business transactions has given rise to a shadow exchange rate that is currently trading at around LBP 2,000 to the dollar, compared with the official rate of LBP 1,508.
The request for IMF and World Bank assistance follows a meeting on 11 December 2019 between the government and the International Support Group for Lebanon, jointly chaired by France and the Office of the UN Special Coordinator for Lebanon.
International donors confirmed the validity of commitments at the meeting despite delayed reforms made in April 2018 at the CEDRE for an investment support package of $11 billion over five years.
The package is contingent on the formation of a new government that immediately adopts a credible 2020 budget as a first step toward a multi-year fiscal programme, and a debt-management strategy with international financial institution support to sustain the efforts.