A report issued by "Moody's" agency showed that the "C" rating reflects the agency's assessment of the losses incurred by bondholders due to the current default in Lebanon, which may exceed 65 percent.
"Moody's" revealed in its new report that the downgrade of Lebanon's credit rating to its lowest rating came as a result of the country plunging into a deepening economic, financial and social crisis, which it seems that very weak institutions and the power of governance are unable to address. Indicating that all this is taking place amid the collapse of the currency in the parallel market, and the accompanying inflation that feeds an unstable environment, and in the absence of major steps towards a reasonable reform of the economic and financial policy, official external financing support to accompany the restructuring of government debt remains elusive, according to the report.
The agency did not announce the appointment of new expectations for the classification of Lebanon, and this decision is based on the extremely high probability of significant losses to private sector creditors and the fact that "C" is the lowest rating in the "Moody's" rating scale. According to the agency, if there were any upward movements in Lebanon's sovereign rating after debt restructuring, it would likely be limited for a long period of time. It is unlikely that Lebanon's rating will move from its current position before the restructuring, given the size of the macroeconomic, financial and social challenges, and the agency expectations of very large losses.
However, the rating given by Moody's is based on recorded results on several levels. Lebanon scored a score (b3) in creditworthiness in the measure of economic strength due to its small size, weak economic outlook, and limited competitiveness. But the final score will be less than (b1), to reflect the very large costs of economic adjustment, to move towards a new and more sustainable growth model. The agency considered that Lebanon’s caa3 score in terms of the effectiveness of institutions and governance reflects the weakness of the governance framework, which balances between the effectiveness of the extremely weak fiscal policy and the effectiveness of the severely restricted monetary and fiscal policy, in light of the increasing economic and external frictions.
Source (Economic Bulletin website, Edited)
