UNITED STATES, WASHINGTON (OBSERVATORY) — The downgrade of a global credit agency by one credit rating and keeping another one with a negative outlook should urge the government to speed up structural economic reforms, economists said on Saturday.
Fitch decided in its periodic report issued on Friday night to downgrade Lebanon’s rating by one notch from “negative” to “CCC”. She said this reflected “increased pressure on the Lebanese financial system, which increases the risks to the government’s ability to service debt.”
Standard & Poor’s maintained the rating of Lebanon as B / B, suggesting that investor confidence will continue to decline “unless the government can overcome political differences and implement structural reforms to reduce the budget deficit and improve business activity.”
The economic situation in Lebanon has been deteriorating for years since the conflict in neighboring Syria, amid fears in recent months about the monetary situation. Today’s public debt is estimated at more than $ 86 billion, more than 150 percent of GDP. Eighty percent of the state’s debt is from the central bank and private banks, which accumulate huge profits from debt-service benefits.
The growth rate was 0.2 percent in 2018, according to the International Monetary Fund.
The two agencies “warn of the difficulty of the economic and financial situation and accuracy with the decline in growth indicators, the deterioration of the fiscal situation and the increase in the balance of payments deficit,” economist Ghazi Wazni told AFP.
He stressed that what is required is that the government quickly to “reduce the budget deficit next year .. and reform the electricity sector seriously to reduce the proportion of the budget deficit, in addition to combating corruption and tax evasion and improve the productive sectors.”
Parliament last month approved austerity budget, after the government pledged last year to an international conference (Cedar) hosted by Paris to help Lebanon, to implement these reforms and reduce public expenditures for grants and loans worth more than $ 11 billion.
The Lebanese Finance Ministry said in a statement on Friday night that the two ratings “are a reminder of the importance of reducing the deficit and implementing structural reforms … and as a reminder that Lebanon has the ability to overcome difficulties and should not be complacent for a moment.”
Since the end of the civil war (1975-1990), successive authorities have failed to undertake structural reforms in a country burdened by debt and political divisions. Many Lebanese do not trust officials’ ability to fix the situation as rising living costs, high unemployment, poverty and widespread corruption persist.
Karim Bitar, a researcher at the Institute for International and Strategic Relations in Paris, told AFP he hoped the latest classification would “shock and urge the authorities not to postpone the structural reforms necessary to revive the economy indefinitely”.
“Religion that has become difficult to sustain, political paralysis, quota sharing and permanent rivalries among sectarian parties that share power … has negatively affected the economy,” he said.
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