Lower Lebanon credit rating shows need for reform: analysts

Analysts warned Saturday that Lebanon needs to accelerate reforms to revive its floundering economy, a day after an agency downgraded the Mediterranean country's credit rating. On Friday, Fitch bumped Lebanon down to "CCC" while Standard & Poor's kept it at "B-/B" with a negative outlook. "The downgrade reflects intensifying pressure on Lebanon's financing model, increasing risks to the government's debt servicing capacity," Fitch said in a statement.
S&P said it could still lower Lebanon ratings over the next year if banking system deposits and the central bank's foreign exchange reserves continued to fall. "Non-resident depositors and foreign investors will likely remain cautious of Lebanon unless the government is able to... implement structural reforms to reduce the large budget gap and improve business activity," it said.
Growth in Lebanon has plummeted in the wake of repeated political deadlocks in recent years, compounded by the 2011 breakout of civil war in neighbouring Syria. The country's public debt stands at more than 86 billion dollars, or higher than 150 percent of GDP, according to the finance ministry. Eighty percent of that debt is owed to Lebanon's central bank and local banks.
Economist Ghazi Wazni said both the Fitch and S&P reports were a warning of Lebanon's "difficult economic and financial situation". It highlighted the need to reduce the budget deficit including through a "serious reform of the electricity sector", as well as fighting tax evasion and corruption, he told AFP. Karim Bitar, a Lebanon expert, said Friday's downgrade came at a time of low confidence in financial markets.
"One has to hope this sanction will be an electric shock that will jolt the Lebanese authorities into no longer postponing reforms," he said. Lebanon's finance ministry said the Fitch and S&P reports were "a reminder of the importance of reducing the deficit and adopting reforms". Lebanon has promised donors to slash public spending as part of reforms to unlock $11 billion in aid pledged at a conference in Paris last year. Last month, parliament passed the 2019 budget, which is expected to trim Lebanon's deficit to 7.59 percent of gross domestic product - a nearly 4-point drop from the previous year.