London, 24 June 2015 — Lebanon’s (B2 negative) public finances benefit from lower oil prices and higher revenues but remain vulnerable to domestic and external shocks, says Moody’s Investors Service in a report published today. The rating agency notes that consensus on economic reforms often remains elusive amid a challenging political environment, hampering the country’s competitiveness. In this context, the country’s twin deficits and debt burden are likely to widen in 2015-2016. Moody’s annual Lebanon Credit Analysis is available on www.moodys.com. Moody’s subscribers can access this report via the link provided at the end of this press release. The rating agency’s report is an update to the markets and does not constitute a rating action. “While Lebanon benefits from short-lived improvements stemming from the drop in oil prices, the release of telecom revenues and lower capital expenditures, policy action remains insufficient to curb the negative fiscal trend,” says Mathias Angonin, an analyst at Moody’s. “Slower economic conditions will continue to pose fiscal challenges and increase the country’s vulnerability to political shocks.” Moody’s expects that Lebanon’s economic growth will remain subdued at 2.5% this year, similar to its 2013 level and up from 2.0% in 2014. Economic growth will likely be supported by low oil prices, a slight recovery in tourism numbers and continued private sector credit growth benefiting from central bank stimulus. Construction activity continues to be slower than pre-2011. According to the rating agency, Lebanon’s general government debt is likely to trend upwards in 2015 and 2016, to 126% of GDP, after falling in 2014. However, it notes that the country has demonstrated a strong capacity to withstand even higher debt levels and Lebanese banks continue to be willing and able to provide financing to the government, supported by strong deposit inflows. Lebanon’s higher fiscal deficit will primarily result from spending pressures: albeit decreasing transfers to Electricité du Liban continue to form a significant portion of expenditure, spending on public wages will continue to rise due to additional security personnel. Nevertheless, the fiscal deficit will likely remain below levels reached in 2012 and 2013, says Moody’s. In addition, the central bank’s foreign exchange reserves, which more than tripled to $33.8 billion by April 2015 from their 2007 level, bolster confidence in the exchange rate peg and the financial system. Large remittance and deposit inflows support banking sector stability. However, the rating agency notes that disagreements among political factions remain a challenge, as reflected by the inability to designate a new president. Political polarization has considerably weakened policy effectiveness. The most pressing fiscal reforms have been on the drawing board for years and are unlikely to be addressed.
The material has been provided by InstaForex Company – www.instaforex.com