In June 2016, Moody’s affirmed Lebanon’s government bond rating at B2 and maintained a negative outlook. The rating mirrors Lebanon’s fiscal flexibility and solid liquidity position, while the outlook takes into consideration the risks accompanying the deferral in policy action to narrow fiscal deficit.
Moody’s determination of government bond rating is based on four factors: Economic Strength, Institutional Strength, Fiscal Strength and Susceptibility to Event Risk.
Lebanon’s Economic Strength is “low”. The Lebanese economy is small and volatile but has continued to grow despite external shocks, such as domestic political deadlock and geopolitical developments. This growth was supported by strong remittances, which reached $3.6B in 2015, the availability of credit, and lower oil prices. However, insufficient public investment and low competitiveness would continue to hamper Lebanon’s economic growth.
Similarly, Lebanon’s Institutional Strength is also “low”. Lebanon’s governance framework is impaired by political deadlock and the Syrian crisis. However, this factor is supported by effective financial regulations and monetary policy. The Lebanese government has never failed to service its debt in a timely manner, despite political and economic shocks.
As for its Fiscal Strength, Lebanon recorded a “very low” score. This is due to the large fiscal deficit, of around 8% of GDP, and high debt burden reaching 126.4% of GDP in 2015.
Finally, Lebanon scored “moderate” on the Susceptibility to Event Risk factor. Political risks are partly offset by a strong consensus among parties to prevent violent spillovers from Syria. Moreover, high foreign reserves and the pegged currency limit economic and balance of payments risks.
Lebanon and Key Peers
