|Lebanon: risk assessment|
|Sovereign risk||Currency risk||Banking sector risk||Political risk||Economic structure risk||Country risk|
Stable. Lebanon has a huge public debt/GDP ratio—an estimated 133.8% of GDP in 2010. Local and regional political instability will push up borrowing costs, but Lebanese banks will continue to be the dominant creditor to the sovereign.
Stable. Sizeable foreign reserves—of US$44.7bn (including gold), nearly a year and a half of import cover, in the first quarter of 2011—should enable Banque du Liban (the central bank) to maintain the currency’s peg to the US dollar.
Banking sector risk
Stable. Immediate risks from the volatile political situation to the banking sector remain limited, but deposits could begin to fall if political tensions worsen. Banks’ dependence on foreign depositors and on Lebanon’s debt-servicing capacity is a long-term vulnerability.
The prime minister, Najib Mikati, finally succeeded in appointing a government after five months of negotiation. The announcement of indictments by the Special Tribunal for Lebanon could further undermine political stability. Syrian influence will continue despite the political unrest in Lebanon’s neighbour.
Economic structure risk
Lebanon has a massive public debt stock, the servicing of which contributes to the large fiscal deficit, and a large structural trade deficit, making its balance of payments dependent on volatile capital inflows.