The abscess was punctured. Lebanon did not honor its due debt on Monday March 9. This is the first default in its history. It is explained by a lucid and worrying observation: the state of public finances no longer makes it possible to cover the service of the staggering public debt, which now represents almost 170% of gross domestic product (GDP). It’s the end of a "Illusion".
An observation that the Prime Minister, Hassan Diab, drew up on Saturday March 7, when he announced the "Suspension" the payment of 1.2 billion dollars (1.1 billion euros) in eurobonds, government-issued treasury bills. The head of government justified this choice by the level "Critical and dangerous" central bank foreign currency reserves – "We have to stop the bleeding" – and by the violent economic crisis that the Lebanese are undergoing.
Since autumn 2019, unemployment has increased, as has inflation. In a country with a dollar economy, a devaluation of the Lebanese pound takes place in exchange offices, where the dollar recently reached 2,600 Lebanese pounds (against 1,500, according to the official rate). "We cannot pay foreign creditors, when the Lebanese do not have access to their deposits, that the hospitals face a lack of supply of medical material and equipment, (…) and that some (Lebanese) are unable to survive and meet their most basic needs. ", justified Mr. Diab.
The country's rating has been continuously degraded since early 2019
Various economists have spoken out in favor of the default. One of the arguments is that, if Lebanon had honored the March deadline, it would have punctuated its reservations, but could hardly have held the following two meetings, in April and June (all of the three repayments expected s amounting to $ 4.6 billion). Debt settlement was likely to worsen the liquidity crisis.
The scenario was also considered inevitable by several rating agencies: they have continuously degraded the rating of Lebanon since early 2019, questioning in particular the real level of the central bank's foreign currency reserves, surrounded by opacity.
The move, however, was fiercely opposed by Lebanese banks, which lobbied until the last moment on Saturday for the government to change its mind. They hold part of the Treasury bills which must be repaid this year and are, in general, the main holders of the Lebanese debt.
