Moody’s report gives Lebanese state a crude awakening

Lebanon not only lacks the trust of Moody’s and similar financial stakeholders, it has lost the confidence of its own people.
Saturday 06/07/2019
A general view shows a street hosting banks and financial institutions, known as Banks Street, in Beirut Central District. (Reuters)
Foggy prospects. A general view shows a street hosting banks and financial institutions, known as Banks Street, in Beirut Central District. (Reuters)

Adolescents do not usually take criticism well. They often respond by denying the problem, externalising blame or finding ways to justify their shortcomings.

On a much larger scale, the Lebanese state acts much the same way. Whenever confronted with criticism over its policy, it lashes out in irrational and unproductive ways. The government’s reaction to a critical analysis by Moody’s Investor Service that drew a bleak picture of the country’s future is a case in point.

Furious over the prestigious international credit agency’s report, the Lebanese state threatened legal action and accused it of maliciously seeking to defame Lebanon and spreading false information. Some accused Moody’s of acting on behalf of a Zionist plot aimed at pressuring the country to back the United States’ Middle East peace plan meeting in Bahrain.

Moody’s rating was a serious analysis, bringing up many important points that the state is simply unwilling to accept or deal with.

After finally hammering out a draft budget that cut the deficit from 11.5% of GDP to 7.6%, the Lebanese government and Prime Minister Saad Hariri felt they were deserving of praise and admiration. Moody’s forecast was a needed wake-up call from this dream, sending the message that, despite Lebanon’s many ostensible reforms, the state is far from making a recovery.

One international financial analyst familiar with Moody’s methodology said the report drove home the fact that “what’s been done so far is not enough to put Lebanon on a sustainable path… Their projections are credible and policy makers should listen.”

“They [Moody’s] highlighted that even if we do believe the numbers from the budget now being debated in the parliament, which is a leap of faith to start with given the lack of discipline displayed in the implementation of previous budgets, Lebanon’s ability to service its debt will be increasingly in question,” the analyst added.

“Other rating agencies will probably be as negative, if not more, in the not so distant future. More radical actions need to be taken now.”

Lebanon has indeed failed to make fundamental changes to its economy, drawing concern from those who are waiting anxiously for the state to get its act together. Topping the list of concerned parties are the main patrons of the CEDRE conference. That included the French government, which expressed disappointment over many of Lebanon’s proposed reforms.

During French presidential envoy Pierre Dukan’s visits to Beirut, he has indicated that Lebanon’s half-hearted reforms will not be enough to expedite transfer of grants and loans allocated during the CEDRE conference nor buy Hariri and his cabinet more time.

The World Bank’s words of encouragement over the approval of Lebanon’s budget and electricity plan were accompanied by calls to ensure proper implementation and introduce further structural measures.

Perhaps the most important of such measures is what the International Monetary Fund has always advocated for, including in its latest meeting with Hariri: raising the value added tax to 15% and raising excises on gasoline by 5,000 Lebanese pounds ($3.32) to rein in the growing budget deficit.

In layman’s terms, this means asking Lebanon to employ the Greek model for the next 20 years, which would cause the average Lebanese consumer to take the hit for the political elite’s reckless behaviour, an approach that would obviously cause political upheaval.

Under the late Rafik Hariri, the country was in a different position. Arab Gulf countries continually bailed Lebanon out of its financial trouble, providing it with a safety net that is no longer available.

As it stands, Saad Hariri and the rest of Lebanon’s political elite lack the foresight, skills and perhaps intent to introduce meaningful reforms. If such resolve does exist, the government’s bloated ego prevents it from heeding sound economic counsel, eroding any hope of recovery.

Lebanon not only lacks the trust of Moody’s and similar financial stakeholders, it has lost the confidence of its own people, who will pay dearly with their money and future sooner rather than later.

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