Lebanon will be defaulting on its debt for the first time, confirmed the country’s Prime Minister Hassan Diab on Saturday.
The country will not be able to serve a $1.2 billion or €1.35 billion Eurobond which is due to mature on Monday, said Diab during a televised address. This announcement was made after a high level meeting between the country’s president, prime minister and senior financial officials during Saturday.
The ongoing economic crisis facing Lebanon is the reason that the Middle East country will not be able to repay the debt, the prime minister said. The foreign currency reserves of the country are critically low because of the economic crisis.
Diab said that the foreign currency reserves of the country have fallen to “a worrying and dangerous level”. Diab’s government which comprises of a number of technocrats was formed in January to bring around a turnaround of the huge economic problems that the country was facing amid countrywide protests.
The country will also try to restructure the debt through talks with bondholders, he also added.
“The Lebanese state will seek to restructure its debts, in a manner consistent with the national interest, by entering into fair negotiations…with all creditors,” he told the Lebanese people I the television address.
The country is also set to face more debt related problems because another $700 million of bonds will mature in April and a further $600 million of bond debts will also mature in June, in addition to the $1.2 billion of matured bonds that would be payable in March.
The country however is planning to pay off the outstanding bond debt by bringing in reforms in the banking and power sectors and sharp reduction in public spending, Diab promised. He also warned that soon, about 40 per cent of the citizens of the country will slip below the poverty line while also promising that the money of people in the country’s banks would remain safe.
The long ongoing conflict in the neighboring country of Syria had created problems for the Lebanese economy and it country was plunged into a political crisis in October last year.
Lebanese banks have introduced tough restrictions on dollar withdrawals and transfers after the value of the pound that is pegged to the dollar went down significantly. Months of continuing anti-government protests, high rates of unemployment and very low economic growth have been the major triggers for the political unrest in the country.
The total debt of the country was at $87 billion at the end of 2019 which was about 155 per cent of the gross domestic product of the country. Lebanon has never before defaulted on its sovereign debt.
The decision to default on the debt has been opposed by local banks of the country which are the main lender in Lebanon arguing that the government’s decision will harm the banking sector and tarnish the relationship and importance of the sector with foreign creditors.
The argument of the government behind the decision is the need for preserving the foreign reserves of the country. The debt repayment has also been opposed by the anti-government protesters.
(Adapted from DW.com)