Lebanon: Increasing challenges in securing external funding – Standard Chartered

Lebanon still lacks a plan to tackle its funding crisis, almost a month after the formation of the second government since the May 2018 parliamentary elections. Economists at Standard Chartered Bank analyze the future of the country. USD/LBP trades at 1515.07.

Key quotes

“We think Lebanon will face increasing challenges in securing external funding – whether from the CEDRE group of international donors, the GCC or others.”

“In the absence of external funding, an eventual restructuring of Lebanon’s debt appears to be the most likely outcome . We believe a default or restructuring of external debt commitments without a clear funding plan or economic framework would further strain Lebanon’s already-uncertain economic, political and social situation.”

“The USD/LBP parallel exchange rate continues to diverge from the official pegged rate. An official devaluation looks increasingly likely if external funding of at least USD 10bn is not secured for 2020.” 

“To factor in the effect of the parallel market on inflation and the current account (C/A) deficit, we raise our 2020 inflation forecast to 7.0% (from 3.3%), rising from 2.9% in 2019; and we lower our 2020 C/A deficit forecast to 13.0% of GDP (from 23.0%).”