Lebanon’s exit from default still tough after inconclusive election, Fitch says

Lebanon still has a tough road to exit from default on its sovereign obligations given the inconclusive outcome of the country’s parliamentary election on May 15, Fitch Ratings said on Friday.

The election results have left parliament split into several camps, with Hezbollah and its allies losing their 2018 majority, raising the prospect of political paralysis that could delay implementing financial and economic reforms, which are preconditions for support from the International Monetary Fund (IMF) and other international partners.

“The weakening of the pro-Hezbollah bloc will give greater voice to other parties,” Fitch said in a report on its website, “but we believe that implementing the IMF’s preconditions will still prove challenging government formation has historically been a lengthy process and the lack of a clear winning faction in this latest election suggests it will again take time.”

Lebanon’s outgoing Cabinet passed a financial recovery roadmap during its final session a week ago before going into caretaker status. The plan envisages cancelling “a large part” of the central bank’s foreign currency obligations to commercial banks and dissolving non-viable banks by November.

The Lebanese banking association, however, rejected the roadmap earlier this week, saying that it places the full losses of the country’s economic meltdown on depositors.

Lebanon’s local currency has lost more than 95 percent of its value since its economic decline began in 2019, and banks have locked savers out of hard-currency deposits.

Fitch affirmed Lebanon’s Foreign-Currency Issuer Default Rating (IDR) at ‘Restricted Default’ last August.