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Wed 26 Feb 2020 08:30 AM

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Lebanon faces a $50 billion hole even beyond all its Eurobonds

In addition to $31 billion of the securities, the Middle Eastern nation's central bank carries $52.5 billion of foreign currency deposits and certificates of deposit

Lebanon faces a $50 billion hole even beyond all its Eurobonds

Falling reserves have led to a shortage of foreign exchange and caused havoc with Lebanon’s financial system. Image: AFP

When it comes to foreign currency liabilities, crisis-wracked Lebanon has a lot more than just Eurobonds to worry about.

In addition to $31 billion of the securities, the Middle Eastern nation’s central bank carries $52.5 billion of foreign currency deposits and certificates of deposit, according to calculations by Toby Iles and Jan Friederich, Hong Kong-based analysts at Fitch Ratings Ltd.

Those obligations are mostly to Lebanese banks and they add to the country’s woes as it faces its worst economic crisis in decades. Falling reserves have led to a shortage of foreign exchange and caused havoc with Lebanon’s financial system. Moody’s Investors Service, which downgraded the government’s debt to 10 steps below investment grade last week, said a sovereign default is “all but inevitable near-term.”

The so-called CDs total $20.9 billion and while few mature this year or next, more than $8 billion come due in 2022 and 2023, according to Fitch.

An estimated $4.5 billion of the $31.6 billion of foreign-currency deposits parked at the central bank mature this year, though most of those will probably be rolled over, the rating company said.

Still, the central bank’s decision in December to pay half the interest on its foreign-currency liabilities in Lebanese pounds points to rising stress, the analysts said.

Lebanon faces a choice over whether to prioritize its reserves for Eurobond payments -- with $1.2 billion of notes due on March 9 -- and imports such as food rather than the central bank’s liabilities. If so, that will force local banks to tighten the de facto capital controls they have had in place for months, Fitch said.

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