Lebanon is in contact with Kuwait, Qatar and Iraq in a bid to help the country deal with its worst financial crisis in decades, Prime Minister Hassan Diab confirmed on Tuesday 14th July 2020.
Diab said that contacts with these three countries, as well as other parts of the world, are “positive and encouraging” in helping Lebanon with the current situation, before accusing some of the political parties in the country of trying to persuade Gulf countries not to support the current Lebanese administration. The comments were made on the official Lebanese presidency Twitter account.
Major General Abbas Ibrahim, Lebanon’s Head of Internal Security, also said on Tuesday that the country is in talks with Kuwait to import oil to help ease the economic and financial crisis.
The current economic crisis in Lebanon stems from the decision to peg the Lebanese pound against the dollar, which created a rift between the black market prices (which was substantially lower) versus the fixed level and a shortage of pounds in the market. This led to large outflows from banks, so policymakers implemented capital controls and withdrawal limits, preventing capital flight and creating high levels of uncertainty and even more volatility in the unofficial dollar-pound rate.The impact of the coronavirus pandemic has also exacerbated the problem further.
Lebanon defaulted on $31bn of eurobonds in March, prompting government officials to enter talks with the International Monetary Fund (IMF) over a $10bn rescue package. However, talks between the parties, as well as the central and commercial banks, have made little progress so far due to diverging views of the size of losses. The IMF predicts that Lebanon’s GDP will contract by 12% and public debt to climb to 161.8% of GDP this year.
Lebanon has recently been warned by index compiler Morgan Stanley Capital International (MSCI) about the ongoing capital restrictions in place which could lead to the country losing its Frontier Markets classification and being removed from the MSCI Frontier Markets Index as a result. MSCI will continue to monitor the situation to access whether liquidity and accessibility of the market has improved or further deteriorated before making its final decision.