|23 October, 2019

Lebanon's reforms could hit confidence in ability to service debt, says Moody's

The move could compound pressures on the currency peg and Lebanon's debt sustainability

A woman walks past Lebanese Blom Bank in Beirut, Lebanon September 28, 2018. Image for illustrative purposes.

A woman walks past Lebanese Blom Bank in Beirut, Lebanon September 28, 2018. Image for illustrative purposes.

REUTERS/Jamal Saidi

LONDON- Confidence in the Lebanese government's ability to service its debt could be further undermined through its plan to force banks to accept a lower interest rate on its debt, Moody's warned on Wednesday.

The move could compound pressures on the currency peg and Lebanon's debt sustainability over the medium term, the ratings agency said.

Beset by national protests and a worsening financial crisis, Lebanon's government has unveiled a set of measures aimed partly at appeasing demonstrators and convincing foreign donors it can slash next year's budget deficit.

The mooted cancellation of the central bank's local currency debt holdings would provide liquidity relief in the short term, it added.

Additional financial sector taxes would be credit negative for banks, further pressuring poor returns and their ability to absorb shocks, Moody's also said.

(Reporting by Tom Arnold, editing by Karin Strohecker) ((Tom.Arnold@thomsonreuters.com; +442075428510; Reuters Messaging: tom.arnold.thomsonreuters.com@reuters.net))

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