Lebanon preparing public debt reform plan, assures on Eurobonds

Lebanon has been without a new government since May as politicians continue to wrangle over the make-up of a new national unity cabinet. (AFP)

• Lebanon has the third largest public debt-to-GDP ratio in the world at around 150 percent and has suffered from years of low economic growth
• Fitch and Moodys both last month revised the outlook on Lebanon to negative from stable

BEIRUT: Lebanon is working on a public finance reform plan and studying ideas for managing the debt and its structure, the finance minister told Reuters on Thursday, after he was cited saying the plan included restructuring of public debt.
Ali Hassan Khalil's remarks to al-Akhbar newspaper about debt restructuring sparked a heavy sell-off in Lebanon's dollar-denominated debt. Some dropped more than 2 cents in the dollar to trade at their weakest in weeks.
In comments to Reuters, Khalil said Lebanon was committed to its Eurobond issuances and those that hold them, and would not violate any of their terms. He said "ideas for the management of the debt and its structure are still under study".
Lebanon has the third largest public debt-to-GDP ratio in the world at around 150 percent and has suffered from years of low economic growth. Its political leaders have been unable to form a new government since a May election.
Khalil told al-Akhbar the ministry was "preparing a financial correction plan including restructuring of public debt" saying this was needed to spare Lebanon "dramatic developments". The details had not been revealed to anyone, he added.
"The public debt cannot continue in this way," he said.
Asked by Reuters about the report, Khalil said the plan was "part of a reform project" for the public finances, starting with measures set out at a Paris donors' conference last year where Lebanon vowed to bring down its deficit.
"It is a voluntary financial correction plan being prepared in the ministry to avoid anything worse happening," he said. He said no steps had been taken yet and the aim was to have the plan ready for when a new government is formed.
The International Monetary Fund urged Lebanon in June to carry out "an immediate and substantial fiscal adjustment" to improve debt sustainability.
Fitch and Moodys both last month revised the outlook on Lebanon to negative from stable.
Lebanon's dollar-denominated debt tumbled in early trading.
Some issues - such as the 2020 and the 2025 bond dropped more than 2 cents in the dollar. The yields in the 2020 bond spiked to as much as 13.3 percent.