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Lebanon has more to worry about than $31bn maturing Eurobonds

Lebanon has more to worry about than $31bn maturing Eurobonds

Falling reserves and inflows have led to a shortage of foreign exchange in Lebanon, disrupting the financial system

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

In addition to $31bn of those, the Middle Eastern nation’s central bank has $52.5bn 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 debts 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.

The certificates of deposit total $20.9bn and while few mature this year or next, more than $8bn come due in 2022 and 2023, according to Fitch.

An estimated $4.5bn of the $31.6bn 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 may choose to prioritize its reserves for Eurobond payments – with $1.2bn 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.

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