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Lebanon returns to the negotiating table with the IMF and creditors

Lebanon has restarted discussions with the IMF and is ready to accept negotiations with its creditors after a hiatus of more than a year caused by the Beirut political crisis, the new government said on Monday.

The Lebanese Finance Ministry said in a statement that it had “resumed interactions” with the IMF and expressed “its willingness to move towards an agreement on an appropriate recovery program.”

He added that the government promised to enter into “good faith discussions with all its creditors as soon as possible,” and welcomed bondholders to “participate in this process.”

The newly appointed prime minister, Najib Mikati, has said that a program with the IMF “is not an option” if the battered nation wants to recover from its economic and financial crisis, which is so severe that the The World Bank has said It could be one of the worst in the world in 150 years.

It is estimated that more than half the population of the heavily indebted country has fallen below the poverty line, while Lebanon’s chronically weak infrastructure is barely functioning. Import financing problems have created fuel-fueled drug shortages. The local currency has lost 90% of its value and inflation has skyrocketed.

A major factor behind the collapse, which accelerated in late 2019, was the unsustainable burden of Lebanon’s public debt, which was far greater than its economic output and put great pressure on its foreign exchange reserves. The World Bank estimates that Lebanon’s debt-to-gross domestic product ratio reached 174 percent at the end of 2020.

With dollar reserves running low and a national banking crisis on the rise, Lebanon halted payments on its $ 31 billion pile of foreign currency-denominated debt more than 18 months ago, the first time Beirut had defaulted on its debt. .

But talks with creditors came to a standstill after the devastating Beirut port explosion triggered the government’s resignation in August 2020. The new government was not appointed until September, after 13 months of political wrangling.

A. lebanese group of creditors He argued in late September that the debt “requires the urgent attention of the new government.” Bondholders, which include BlackRock and London-based emerging markets specialist Ashmore, could see a 75 percent reduction in the value of their bonds, a Goldman Sachs analyst wrote last month.

Lebanese dollar bonds, which have not offered investors any interest payments since March last year, are currently trading at about 17 cents on the dollar, having fallen below 12 cents earlier in the year.

“One way or another, we are talking about brutal haircuts,” said Raza Agha, head of emerging markets credit strategy at Legal & General Investment Management, which has a “very small” amount of Lebanese debt. “Some movement in News Primer is one thing, but a recovery is not going to be a one or two year story. It is going to be a long and drawn out process. ”

Proper debt restructuring is a key demand from potential donor countries, which might be willing to help Lebanon financially if they believe the nation has a credible plan to get back on track.

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