Lebanon Central Bank to Sell $2 Billion Eurobonds

  • Economics
Lebanon Central Bank to Sell $2 Billion Eurobonds

Lebanon's central bank will sell $2 billion of Eurobonds over the coming year, the central bank governor said on Wednesday, part of a debt swap the government says will boost central bank reserves and reduce its debt-servicing costs.

Central Bank Governor Riad Salameh, in an email to Reuters, confirmed a plan for a $5.5 billion to $6 billion debt swap announced by Finance Minister Ali Hassan Khalil at the end of March. Bloomberg reported the planned $2 billion Eurobond sale, part of the swap, on Monday.

Under the planned swap, the government will issue $5.5 billion to $6 billion of new foreign currency bonds and swap them for Lebanese pound Treasury Bills at market rates held by the central bank, Salameh said.

"[The debt swap] will strengthen the dollar assets of the central bank and will allow the central bank to lend the government in Lebanese pounds at low rates without jeopardizing the stability of the currency," Salameh said.

Central bank data show foreign assets stood at $43 billion at the end of April.

Lebanon has one of the world's highest ratios of debt to gross domestic product at more than 150 per cent, and the International Monetary Fund has called Lebanon's debt trajectory unsustainable.

Growth has stagnated between 1 and 2 per cent since the Syrian conflict broke out in 2011 and the country is under pressure from international donors, who pledged around $10 billion in soft loans in April, to show it has a credible plan to improve public finances.

Lebanon on Sunday held its first parliamentary election in nine years, and it is unclear how long it will take to form a new government once parliament's term expires on May 20.

Salameh said there was no schedule yet for the $2 billion Eurobond sale, which could happen "in increments".

Paralysed by political tensions for years, Lebanon's government has been unable to reform public finances.

The central bank has maintained economic stability using stimulus and unorthodox financial operations, using the billions of dollars deposited in Lebanon by the country's large diaspora.

In 2016 the central bank carried out what it and the IMF have called "unconventional" financial engineering to boost foreign currency reserves, maintain a peg to the US dollar and raise banks' capital reserves.

Lebanon at the time was struggling to resolve a presidential vacuum of more than two years long and cope with the impact of the Syrian conflict. The growth rate of deposits into banks was slowing and foreign currency reserves fell.

Part of the financial engineering encouraged local banks to bring dollars into the central bank by buying local currency debt from them at favourable rates.

Salameh said the planned debt swap would not go as far as the financial engineering of 2016 and similar incentives for banks would not be offered.

Source: Reuters