Lebanon: Cautious Optimism Over New Government’s Seriousness to Deal With Public Finance, Electricity Issues

Lebanon’s economic and banking community is reacting with cautious optimism over leaked information on an internal consensus to enable the government to achieve a strong move in the public finances, including the quick completion of this year’s budget.

According to the available information, the cabinet, after receiving parliament’s confidence vote, will hold a session this week to affirm its commitment to the reform plans submitted to the CEDRE1 Conference, including the possibility to resort to swift integrated measures aimed at improving the electricity supply in conjunction with the rise of consumer prices, curing public sector employment, in addition to a possible increase of taxes on fuel.

Last month, Moody’s Investor Service announced a decision to downgrade Lebanon’s long-term investment rating from B3 to Caa1, reflecting the “heightened risk that the government’s response to increased liquidity and financial stability risks will include a debt rescheduling or other liability management exercise that may constitute a default under Moody’s definition,” the investor service said in a report.

Moody’s later considered the formation of the government a positive factor for credit risk in Lebanon, as it would facilitate the utilization of $11 billion of soft loans and grants obtained by the CEDRE Conference.

Meanwhile, interest rates on deposits and loans in banks are expected to decrease relatively in the light of the easing political pressures and the atmosphere of optimism over the exceptional attention given to the country’s economic and financial files.

The formation of the government and the adoption of the ministerial statement have also left positive repercussions on Lebanon’s international bonds.

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