Lebanon is to default on a foreign loan payment for the first time in its history as the country struggles with a financial crisis.
March 10, 2020 | AtoZ Markets – A currency crisis has done what years of sectarian bloodletting could not. On Monday, Lebanon did not repay a $US1.2bn (£900m) Eurobond. However, it was the first sovereign default in Lebanon’s history.
Lebanese government suspends Loan repayment
Prime Minister Hassan Diab said Lebanon would not be making a bond payment of $1.2bn due on Monday. Mr Diab said:
“The debt has become bigger than Lebanon can bear, and bigger than the ability of the Lebanese to meet interest payments.”
Lebanon has been struggling since the value of its currency plummeted. The Lebanese pound has been losing value against the dollar for months. The reason is that the country’s banks have been reluctant to convert local pounds to dollars. This has resulted in an increase in demand for the latter.
This issue with foreign exchange has led to importers having difficulty accessing goods, which have become more expensive. Those with savings have also been affected by the drop in the value of the local currency.
Negotiations to restructure Lebanon’s loan to continue
In a live televised address on Saturday, Mr Diab said that negotiations to restructure the country’s debt, which stands at more than $30bn, would continue “with all creditors… in a manner consistent with the national interest”.
Mr Diab also added that more than 40% of the population could soon be in poverty. Currently, Lebanon is tackling its worst economic crisis in decades.
The 61-year-old became prime minister in January as part of a new government that formed after protests over the failure of leaders to deal with the economic crisis turned violent. In October, anti-government protesters took to the streets in response to rising prices. They also protested about high youth unemployment, poor public services, and corruption.
The crisis has severely hit public services, with electricity and water supplies frequently disrupted and rubbish left to pile up on the streets. With Lebanon remaining heavily in debt, economists suggest that a rescue deal with the International Monetary Fund (IMF) is the only way forward – and real reforms would be needed for that to happen.
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