Lebanon to stop paying back all debt in foreign currencies

 Lebanon will stop paying all maturing Eurobonds in foreign currencies amid a crippling economic and financial crisis and as foreign currency reserves continue to drop, the Finance Ministry announced Monday.

The decision to stop paying the Eurobonds — believed to be worth about $30 billion and which mature in the coming years until 2037 — comes more than a week after Lebanon’s government suspended the payment of $1.2 billion in loans that matured on March 9. It was Lebanon’s first-ever default in paying back part of its massive debt.

The decision comes as the country’s already troubled economy is receiving another severe hit from the coronavirus outbreak. This has led to the shutting down of businesses and has delivered a blow to the tourism industry, a main foreign currency earner. The outbreak is also likely to affect currency inflows from Lebanese living abroad. 

The decision not to pay all maturing debt in foreign currency could have severe repercussions for the tiny country, risking legal action by lenders that could further aggravate the financial crisis and push Lebanon’s economy toward collapse.

The local currency has already lost up to 60% of its value on the dollar on the black market, and banks have imposed crippling capital controls on cash withdrawals and transfers. 

The Finance Ministry said in a statement that the aim of the move is to preserve Lebanon’s dwindling foreign currency reserves, which stand at about $22 billion. The reserves are badly needed to import wheat, fuel and medicine.

“The government will take all measures it sees necessary to carefully and wisely manage Lebanon’s limited foreign currency reserves,” the ministry said.

Lebanon’s debt reached $90 billion or 170% of GDP, making it one of the highest in the world. The debt in foreign currencies is believed to be around $30 billion, and the rest is in Lebanese pounds. 

It said the government will work on reforming the economy and is working on an economic plan to improve Lebanon’s economic conditions.

The Finance Ministry said that Lebanon wants to hold “goodwill” talks with lenders as soon as possible, and the ministry plans to do an investor presentation on Friday. It added that instructions have been given to asset management firm Lazard, the government’s financial adviser, to work on facilitating the talks with lenders.

Lebanon’s current government, which was formed just eight weeks ago, is grappling with a severe financial and economic crisis that has led to months of protests and upended trust in the Lebanese banking system. 

Lebanon has been suffering in recent years from a lack of economic growth, high unemployment and a drop in hard currency inflows from abroad but the financial crisis erupted after nationwide protests over widespread corruption and decades of mismanagement by the ruling political class engulfed the country in October.