Lebanon creditors could face a haircut of 75% if the new Lebanese government solved the issue of financial losses and implemented reforms, Goldman Sachs stated in a new report.
Lebanon’s path to economic recovery will likely be “fraught with difficulty and risk,” the bank said in the report, which came after Parliament’s vote of confidence to the Lebanese government on Monday.
The first challenge of this government will be resolving the losses in the financial system, the report indicated.
Goldman Sachs cited assumptions that include lowering the exchange rate of the U.S. dollar to 8,000 Lebanese pounds in the medium term, introducing negative or low real interest rates on public debt, and some economic growth and fiscal balance adjustment.
“Given these assumptions and constraints, we arrive at an estimated haircut to the nominal value of the current Eurobonds of 75%,” the bank concluded.
Lebanon defaulted on Eurobonds for the first time in its history back in March 2020. The country faces debt that Goldman Sachs estimated to be over 300% of the GDP at current market exchange rates.
Since the crisis began, Lebanon’s annual inflation rate has skyrocketed to become the highest in the world as state institutions and vital sectors crumble alongside the collapsing national currency.