forex exchange house in Lebanon/Bloomberg

Economy

IMF warns against Lebanon’s $7.3 billion plan to cut debt costs

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The International Monetary Fund (IMF) stated that Banque Du Liban (BdL) should let the market determine yields on government debt.

Thursday 04, July 2019

The IMF has said that Lebanon’s central bank risks undermining its credibility if it agrees to a government proposal to buy treasury bills at below-market rates, reported Bloomberg.

Finance Minister Ali Hassan Khalil has proposed issuing LBP 11 trillion ($7.3 billion) of treasury bonds to commercial banks at a rate of one per cent—about a tenth of the market rate—in order to cut LBP 1 trillion from debt-servicing costs.

Banks have turned down the offer and an official said the central bank was likely to take up the proposal on its own.

 “Buying the proposed low-interest government debt would worsen the BdL’s balance sheet and undermine its credibility, the central bank should gradually phase out its financial operations once fiscal adjustment and the subsequent decline in yields demanded by investors allow it to do so,” the IMF said.

Riad Salameh, BdL Governor said that the central bank is still in negotiations with the finance ministry on how to reduce servicing costs on public debt, which is estimated at 160 per cent of gross domestic product.

The government’s 2019 draft budget sets a deficit target of 7.6 per cent of GDP, but the IMF expects the gap to reach 9.8 percent. Lebanon plans to pare the deficit primarily by reforming its ailing electricity sector and cutting public sector benefits.

The IMF said that the measures proposed in the budget, together with savings from electricity sector reforms, are projected to reduce the primary deficit in 2020-22 but leave debt on a rising path.

The Lebanese finance minister twitted that the IMF report is not encouraging while noting that the IMF did praise Lebanon’s 2019 draft budget as a major step in the right direction.

Khalil said that he will submit the 2020 draft budget before the end of August,  however, the parliament has not yet approved the 2019 draft budget, which is being revised in committee.

 

TAGS : treasury bills, treasury bonds, BdL, IMF

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