S&P Global Ratings has upgraded its assessment of Lebanese sovereign debt for the first time with a stable outlook on the long-term local currency rating.

S&P raised Lebanon’s long-term local currency sovereign credit rating to 'CCC' from 'CC' and affirmed its short-term local currency rating at 'C'. The stable outlook reflects modest improvements in the government’s capacity to service its local currency commercial debt, supported by recurring fiscal surpluses and the resumption of interest payments to the central bank.

The upgrade follows the formation of a new government in Lebanon in February 2025 which has made progress in adopting laws, which are a precondition to unlocking a new IMF program and moving ahead on long-delayed debt restructuring. In April 2025, the country's parliament ratified the amended Banking Secrecy Law and recently approved the Bank Restructuring Law. Both are essential steps toward unlocking a long-delayed IMF Extended Fund Facility.

"The outlook assumes gradual progress but acknowledges significant downside risks ahead of the May 2026 parliamentary elections," Soojin Kim, a research analyst at MUFG Bank, said. 

The government’s access to the international markets remains closed. S&P noted that the government also did not issue domestic debt in 2024 or first-half 2025. This has been due to limited financing options in the domestic market and tighter fiscal control, which led to an estimated budgetary surplus.

This improved headline fiscal performance over the past two years, along with the exchange rate stabilization and substantial rise in the nominal GDP (driven by very high inflation over the past five years), led to a decline in Lebanon’s net general government debt to a projected 113% of GDP at the end of 2025 from about 240% in 2022. Lebanon remains in default on the vast majority of its debt and has not been paying principal or interest on its Eurobond obligations since 2020.

"Lebanon remains in selective default (SD) on its foreign currency debt and has yet to pass the critical Financial Gap Law, which is central to determining past banking sector losses and compensating depositors," Kim said in a report. 

While the Lebanese pound has stabilised since early 2024 and fiscal performance has improved due to higher revenues and spending controls, the country still faces challenges such as weak institutions, fragile public finances, limited external financing, and ongoing geopolitical tensions with Israel, all of which may delay further reforms.

(Writing by Seban Scaria; editing by Daniel Luiz)

(seban.scaria@lseg.com)