Lebanon Faces a $50 Billion Hole Even Beyond its Eurobonds
February 26, 2020

By: Paul Wallace.
Bloomberg, Feb. 26, 2020

Lebanon has a lot more than just maturing Eurobonds to worry about.

In addition to $31 billion of those, the Middle Eastern nation’s central bank has $52.5 billion of obligations in the form 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.

Mostly owed to Lebanese banks, these additional liabilities compound the country’s woes as it grapples with its deepest economic crisis in decades. They also complicate a potential debt restructuring by the government, which on Tuesday confirmed it had hired Lazard Ltd. and Cleary Gottlieb Steen & Hamilton as financial advisers.

Falling reserves and inflows have led to a shortage of foreign exchange in Lebanon, causing havoc with the financial system. Moody’s Investors Service, which downgraded the government’s debt to 10 steps below investment grade last week, said a default is "all but inevitable” in the near term. Lebanese Eurobonds mostly trade below 30 cents on the dollar and fell to another record low on Wednesday.

The certificates of deposit 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, known as the Banque du Liban, mature this year, though most of those will probably be rolled over, the rating company said.

Still, the BdL’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 may choose 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 obligations. If so, that will force local banks to tighten the de facto capital controls they have had in place for months, Fitch said.