BEIRUT: Lebanon’s finance minister said on Friday that a decision by Moody’s rating agency to change the country’s outlook to negative from stable proved the need to form a government and launch reforms.
Moody’s changed Lebanon’s outlook on Thursday while affirming its B3 rating, reflecting what it called an increase in risks to the government’s liquidity position and the country’s financial stability.
Saddled with a stagnant economy and the world’s third-highest rate of debt as a proportion of gross domestic product, Lebanon is also mired in political wrangling, with rival parties unable to form a government since May’s parliamentary election.
“Moody’s report today... confirms the importance of forming a government and starting reforms to restore confidence, reduce risks and reduce the deficit,” Finance Minister Ali Hassan Khalil wrote in a tweet.
“This is possible now, but we may lose the opportunity in months if the outlook remains negative,” he added.
The cost of insuring Lebanese sovereign debt against default this week rose to its highest level since the global financial crisis of 2008.
Overnight interbank rates for Lebanese pounds hit a 2018 high of 75 percent on Thursday. Two sources Reuters spoke to on Friday familiar with the rate said it had stayed at that level, while two others said it had dropped a bit.
The rates have not been this high since November 2017, when Prime Minister Saad Al-Hariri announced, and then rescinded, his resignation in a declaration that Saudi Arabia was widely believed to have coerced him into making.
“Once you have a government, it will have a positive impact on the market. Demand for dollars will decrease and things will go down again to the normal situation,” said one trader.