|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.Sovereign risk
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 fall if political tensions worsen, either domestically or in neighbouring Syria. Banks’ dependence on foreign depositors and on Lebanon’s debt-servicing capacity is a long-term vulnerability.
There is a risk of the increasingly violent unrest in Syria spilling over the border into Lebanon. The government’s support for the Syrian regime also means Lebanon risks being isolated regionally from allies like Saudi Arabia. Sectarian tensions between Lebanon’s political groups could increase political instability.Political risk
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.