Fitch Ratings has revised Lebanon’s outlook to negative from stable. Its long-term foreign and local currency issuer default ratings (IDRs) have been affirmed at B.
The issue ratings on Lebanon’s senior unsecured foreign and local currency bonds are also affirmed at B. The country ceiling is affirmed at B and the short-term foreign currency IDR at B.
“The involvement of Hezbollah and Sunni groups in the neighbouring Syrian conflict has increased sectarian tensions domestically. Violence in Lebanon, though still sporadic, has intensified in recent months. The ever-rising number of refugees also adds to tensions and strains, especially on infrastructure and public institutions. In the absence of agreement on the composition of a new government, political life has been paralysed since March 2013, and presidential elections in 2014 add to political uncertainty,” Fitch in a statement said.
“After several years of decline, the public debt-to-GDP ratio, which ranks among the highest of all Fitch-rated sovereigns, is rising again. Fitch expects it to rise to 138% of GDP at end-2013 (2012: 134.2%) and above 140% by end-2015. Given the role of domestic banks in deficit financing, through the intermediation of their substantial deposit base, public debt sustainability remains reliant on the continuous rise in the banks’ deposit base. Although resilient so far, deposit growth has slowed since the start of the Syrian conflict and worsening security in Lebanon exposes the banking sector to a heightened risk of sudden deposit outflows.”
“Loss in confidence induced by spillovers from the Syrian conflict has taken a heavy toll on economic performance. With all macroeconomic indicators pointing to weakening activity, Fitch expects real GDP growth of around 1.5% in 2013. No major improvement is to be expected until the Syrian conflict is resolved,” Fitch in a statement said.
“Deposit growth, fuelled by the large Lebanese diaspora, has so far remained resilient: the overall deposit base rose 7.8% yoy in October 2013. Domestic banks have remained willing to intermediate them into government financing: at end-October 2013, they held 58.6% of total public debt (2012: 54%). Deposit dollarisation, an indicator of depositor confidence in the country, rose only slightly to 65.7% in October 2013 (2012: 64.8%).”
“GDP per capita and the UN’s human development index are well above ‘B’ medians, and more in line with ‘BBB’ medians. The World Bank’s ‘Ease of Doing Business’ survey and most governance indicators are broadly in line with ‘B’ medians.”
“Both the country and the sovereign are net external creditors due to steady accumulation of international reserves (USD44.1bn at end-October 2013). Reserves are a crucial support to the Lebanese pound’s peg to the US dollar, given the high dollarisation of the economy.”