Lebanon's credit profile ( C rating) reflects the impact of the country's economic, financial and social crises, which the country's very weak institutions and governance strength appear unable to address, Moody's said in an annual report.
The global credit rating agency noted that the currency collapse in the parallel market and subsequent inflation surge fuel a highly unstable environment, where access to external funding support to accompany the government's debt restructuring is conditional on the implementation of specific reform steps.
"Lebanon's C rating is the lowest on our rating scale, reflecting our expectation that losses incurred by bondholders will likely exceed 65%," Elisa Parisi-Capone, Vice President - Senior Analyst at Moody's Investors Service, said. "The rating is unlikely to move from its current position before the restructuring, given the extent of the macroeconomic, financial and social challenges and our expectation of very significant losses," she added.
Lebanon's credit profile benefits from the commitment for external funding support both from the International Monetary Fund (IMF) and the international donor community, conditional on the swift appointment of a new government and specific reform implementation.
However, the country's factional rivalries slowed down the process of forming a new government on Monday on the eve of a deadline agreed with France, foiling one of its biggest chances to come out of the economic crisis.
These specific reforms will include making public finances and the banking system solvent again via a comprehensive debt restructuring, legislation to formalize capital controls and the elimination of the current multiple exchange rate system and comprehensive audits of the central bank and state-owned enterprises.
According to Moody's, for Lebanon's rating to rise from current levels, the key drivers of the country's debt dynamics, such as economic growth, interest rates, privatization revenue and the ability to generate and sustain large primary surpluses, would need to evolve in a way that ensures future debt sustainability.
(Writing by Seban Scaria; editing by Daniel Luiz)
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