Ratings agency S&P cut its outlook on Lebanon’s long-term sovereign credit rating to negative from stable on Monday and said government stability and the currency peg to the dollar could be threatened if unrest in Syria fuelled further tension.
Standard & Poor’s reaffirmed its B/B long- and short-term foreign and local currency sovereign credit ratings on Lebanon. But it said the balance of risks on the long-term rating had shifted to the downside.
Unrest from neighboring Syria’s 14-month-old uprising spilled over into Lebanon this month with street battles in Beirut and the northern city of Tripoli.
A dozen people were killed and analysts said the bloodshed could mark the start of protracted instability in Lebanon, which already witnessed a slowdown in economic growth last year.
“The security situation in Lebanon may deteriorate in tandem with Syrian developments, threatening government stability in Lebanon – which could put deposit levels at risk and potentially strain already weak public finances and the central bank’s ability to maintain its currency peg to the U.S. dollar,” S&P said.
Lebanon enjoyed GDP growth of around 7 to 8 percent annually from 2007 to 2010, but that fell off sharply last year after domestic political tensions were followed by the start of the uprising against President Bashar al-Assad in Syria.
Economy and Trade Minister Nicolas Nahas surprised Lebanese economists and businessmen two weeks ago when he said the economy grew by 5.2 percent last year – twice the size of earlier estimates, although still significantly below previous levels.
The IMF has forecast GDP growth of 3 percent this year, but the country’s debt burden is likely to remain at around 135 percent of GDP, according to government figures.