Seeing that Lebanon is suffering from a severe – and worsening – economic, financial, and social crisis, the American credit rating agency, Moody’s Investors Service, downgraded the collapsing country’s issuer rating.
For context, the rating system that Moody’s uses is a standard scale that measures the expected investor loss in the event of a borrower defaulting on debts.
“Aaa” is the scale’s highest rating while “C” is its lowest.
On Monday, the company downgraded the Lebanese government’s creditworthiness rating from “Ca” to “C,” citing a high likelihood of significant loss for private investors.
As such, Lebanon now shares this rating with no other country but Venezuela, which speaks volumes about the scale of its crisis compared to the rest of the world.
In the Lebanon report, Moody’s assesses that the losses incurred by bondholders through the country’s current default “are likely to exceed 65 percent.”
Moreover, it explains that the collapse of the Lebanese pound in the parallel market and the concomitant surge in inflation fuel “a highly unstable environment.”
“The country is steeped in an economic, financial, and social crisis, which very weak institutions and governance strength appear unable to address,” Moody’s argues.
With that said, the rating agency suggests that official external funding support to accompany a government debt restructuring “is not forthcoming.”
Lebanon, which is now seeking the International Monetary Fund’s bailout package of $10 billion, has compounded a public debt of $93.14 billion as of May 2020; the highest debt-to-GDP ratio after Japan and Greece, both of which have a stable outlook and are rated A1 and B1 respectively.
In Lebanon’s case, the said ratio is expected to increase further in 2020.
Meanwhile, the country’s IMF talks continue to be blocked by its authorities’ apparent lack of intention to implement serious reforms that would provide the basis for the Fund and the international community to support Lebanon.