Economic Research | Lebanon This Week | Lebanon This Week 528 | S&P affirms Lebanon's sovereign ratings, outlook 'stable' | Lebanon | Byblos Bank

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Lebanon This Week 528

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S&P affirms Lebanon's sovereign ratings, outlook 'stable'

S&P Global Ratings affirmed Lebanon's long- and short-term foreign and local currency sovereign credit ratings at 'B-/B', and maintained its 'stable' outlook on the ratings. It indicated that the 'stable' outlook reflects its expectations that deposit inflows to the financial system will remain sufficient to support the government's borrowing requirements and the country's external deficit over the next 12 months.

The agency pointed out that the government's debt-servicing capacity depends on the financial sector’s willingness and ability to continue to subscribe to government securities. In turn, it noted that this relies mainly on non-resident deposit inflows and on financing from Banque du Liban (BdL). It considered that the government's reliance on the banking sector’s willingness and ability to finance its needs, as well as the divisive domestic political environment and regional tensions, constitute structural weaknesses that have constrained the ratings. It added that the weakening of public institutions has weighed on economic activity and has negatively affected public finances, as reflected by the wide fiscal and current account deficits and the elevated public debt level. 

S&P considered that the ratings are supported by Lebanon's external profile, as the country's liquid external assets, which consist of foreign currency reserves and the assets of the financial sector held abroad, exceed its external debt. It said that the November 2017 political crisis led to about $2.6bn in outflows, but it indicated that such outflows constitute a small share of the banking sector's deposits and were more than compensated by returning inflows, in line with trends during past episodes of political volatility.
 
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