S&P upgrades Lebanon on Bank System, Political Stabilization

22Dec09

DOW JONES Newswire – Standard & Poor’s Ratings Services raised Lebanon’s sovereign-credit ratings and gave them a positive outlook because of banking resilience and the expectation of political stability in the medium term.

Lebanon benefits from a large and stable depositor base, as well as financial support from wealthy Arab states and Lebanese expatriates, but the country has a large public debt which hinders its fiscal flexibility. Last month, Prime Minister Saad al-Hariri formed a national unity government.

Over three years of political flux, Lebanon’s public finances and especially its banking system remained resilient, according to S&P. In addition, the new party consensus improves the likelihood of achieving reforms recommended by the International Monetary Fund and the Paris III conference on rebuilding the country. These reforms could lower fiscal deficits, cut government debt-to- gross-domestic-product levels and reduce Lebanon’s liabilities.

The agency Tuesday said it expects, conservatively, that the central government fiscal deficit could fall to 6.3% of GDP in 2012 from 9.9% in 2008.

S&P raised its long- and short-term sovereign-credit ratings on the Republic of Lebanon one notch to B. Further ratings action will depend on how much success the new government has in increasing fiscal stability. The rating would face downward pressure should civil unrest break out or the government falters in its pursuit of the Paris III reforms.



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