Lebanon has resumed talks with the IMF and is ready to renegotiate with its creditors after a more than years-long disruption caused by the political crisis in Beirut, the new government said on Monday.
The Lebanese Ministry of Finance said in a statement that it had resumed “interaction” with the IMF and was “prepared to make progress on reaching an agreement on a suitable recovery program”.
It added that the government was committed to ‘having good faith talks with all its creditors as early as possible’, and welcomed mortgagees to ‘participate in this process’.
The newly appointed Prime Minister Najib Mikati said a program with the IMF was ‘no choice’ if the afflicted nation would recover from its economic and financial crisis, which is so severe that the The World Bank said it could be one of the worst in the world in 150 years.
It is estimated that more than half of the country’s population with much debt has fallen below the poverty line, while the chronically poor infrastructure of Lebanon is barely functioning. Import financing problems have led to a shortage of medicines for fuel. The local currency has shaken off 90 percent of its value and inflation has increased.
One of the key factors behind the collapse, which accelerated at the end of 2019, was Lebanon’s unsustainable public debt burden, which was far greater than its economic output and put great pressure on its foreign exchange reserves. The World Bank estimates that Lebanon’s debt to gross domestic product reached 174 percent by the end of 2020.
Dollar reserves run low and domestic banking crisis rages, Lebanon refunds stopped on its pile of $ 31 billion in foreign currency debt more than 18 months ago, was the first time Beirut has broken on its debt.
But talks with creditors came to a standstill after the devastating port of Beirut blast caused the government to resign in August 2020. The new government was only appointed in September, after 13 months of political strife.
A group of Lebanon’s creditors late September argued that the debt “requires the new government’s urgent attention”. The bondholders, which include BlackRock and emerging market specialist Ashmore in London, could see a 75% reduction in the value of their bonds, a Goldman Sachs analyst wrote last month.
Lebanese dollar bonds, which have offered investors no interest payments since March last year, are currently trading at about 17 cents on the dollar, which fell below 12 cents earlier in the year.
“Somehow you’re talking about cruel haircut,” said Raza Agha, head of emerging market credit strategy at Legal & General Investment Management, which owes a “very small” amount of Lebanese debt. ‘A movement over politics is one thing, but a recovery is not a story of a year or two. It’s going to be a long, drawn out process. ”
Proper debt restructuring is an important demand of potential donor countries, who may be willing to help Lebanon financially if they believe the country has a credible plan to get back on track.