Goldman Sachs said investors in Lebanese bonds could lose 75 percent of the value of their investments in them, if the new government flattens the losses of the financial system and begins implementing credible reforms and opens the door to obtaining financing from the International Monetary Fund.
Lebanon defaulted on its international debt obligations in March 2020 after years of political turmoil and economic mismanagement made it unable to service a debt that Goldman Sachs estimated to exceed 300 percent of GDP at current market exchange rates.
After a year-long political stalemate, billionaire Naguib Mikati formed a new government this month, with three-quarters of the population now joining the ranks of the poor in one of the worst recessions in modern history.
“Parliament’s approval of the Mikati government on Monday represents the first step on a long, narrow road to Lebanon’s economic recovery that is likely to be fraught with difficulties and risks,” Goldman Sachs said in a report this week.
The bank’s expectations for debt settlement are based on assumptions, including an improvement in the value of the Lebanese currency to reach eight thousand pounds against the dollar in the medium term, from about 14,500 pounds to the dollar currently in the parallel market, in addition to negative or low interest rates on public debt and certain rates of economic growth and the adjustment of the financial balance the public.
“In light of these assumptions and limitations, we arrive at an estimated reduction in the face value of the current bonds of 75 percent,” the bank said.
He explained that settling losses in the financial system will be the first challenge facing the government, and estimated that foreign currency obligations in the banking sector amount to $70 billion, compared to $13 billion usable reserves at the Central Bank. The government will also need to initiate comprehensive reforms to address the weaknesses that have pushed Lebanon into crisis.
Goldman Sachs said, “In light of our conviction that an International Monetary Fund program is necessary for Lebanon, early communication with the Fund is an important condition for discussions with creditors and the final solution to the default.”
In turn, Yoana Frontka, the United Nations Special Coordinator in Lebanon, stressed yesterday the importance of implementing financial reforms and resuming negotiations with the International Monetary Fund.
“I would like to express, as usual, the support of the United Nations to Lebanon and at the same time stress the importance of implementing financial reforms that we consider very important, in addition to resuming negotiations with the International Monetary Fund,” Frontka, Youssef El-Khalil, said after her meeting with the Lebanese Minister of Finance yesterday.
She added, “We discussed the issue of special drawing rights and the mechanism for disposing of them and the issue of economic reforms in general, and I now have a clear vision,” describing the atmosphere of the meeting as very fruitful.
She expressed her hope that “the very ambitious reform plan will be implemented, because what is important for us is to see progress and alleviate the harsh and painful life of people, especially with regard to the electricity and fuel sector.”
According to a statement issued by the Lebanese Ministry of Finance, they discussed financial and economic affairs. Najib Mikati’s government, which was formed on September 10, confirmed in its ministerial statement its commitment to holding parliamentary elections on time and holding municipal and elective elections. She pledged to immediately resume negotiations with the International Monetary Fund and to implement reforms in all fields.
On the other hand, the Electricité du Liban (EDL) reported that its remaining stock of fuels, which was insured according to the loan given, especially for the two fuels, has fallen sharply.
The Corporation said, in a statement reported by the National News Agency, that its stores were completely depleted in the Jiyeh thermal plant and the two energy-producing steamships “Fatima Gul” and “Orhan Bay”, which led to their forcible stopping of energy production.
She added, “It is about to run out, on the other hand, in both the Zouk thermal plant and completely in the reverse engine laboratories in Zouk and Jiyeh, except for one engine in each, which will also lead to their forcible stopping of energy production.”
The institution stated, “Therefore, despite EDL’s best efforts, with its current capabilities, to take a series of consecutive precautionary measures, in order to secure a minimum stable electrical supply for the longest possible period, in light of the economic and financial conditions, and the difficult cash the country is going through.
She explained that she had exhausted all possible options, and she could no longer manage the remaining production groups in a manner consistent with her remaining stocks of fuel and the quantities of fuel expected to be supplied under the exchange agreement with the Iraqi state, which alone is sufficient only for a production capacity of 500 megawatts as a maximum.
She pointed out that this results in many difficulties to ensure the stability and stability of the network and threatens its complete collapse at any moment, as during the last two weeks only the electrical network has been subjected to more than seven general outages throughout the entire Lebanese territory.
She pointed out that if things continue as they are, there is a high risk of reaching a general and comprehensive interruption at the end of September, after it has exhausted its entire fuel reserves or the inability to ensure the stability and stability of the electrical network, in light of production that does not exceed 500 megawatts.
She explained that, for several months, EDL has still been unable to use the surplus of the national currency accumulated in its accounts with the Banque du Liban as a result of the operations of collecting subscription bills for feeding into the electric current, in an attempt to cover part of its fuel needs in hard currency for the need for energy production. Despite its relentless efforts with all concerned in this regard.
She said, “Therefore, after EDL has exhausted all the options and precautionary measures it has resorted to, and is no longer able to secure a minimum supply of electric current due to this situation outside its control, it will seek to keep all citizens aware of the supply of electricity through subsequent data.
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