The Central Bank of Lebanon will sell $ 2 billion in international bonds over a year as part of a debt swap that the government says will boost central bank reserves and reduce debt service costs, the central bank governor said on Wednesday.
Governor Riad Salameh told Reuters that a plan to swap $ 5.5bn to $ 6bn of debt, was announced by Finance Minister Ali Hassan Khalil at the end of March. Bloomberg reported the planned sale of $ 2 billion in international bonds under the swap on Monday.
Under the planned swap, the government will issue new foreign currency bonds worth between $ 5.5 billion and $ 6 billion and swap them with treasury bills in Lebanese pounds at market prices held by the central bank, Salameh said.
Salameh said the debt swap “will strengthen the dollar assets of the central bank and allow it to lend the government in Lebanese pounds at lower interest rates without destabilising the currency.” Central data show foreign assets at $ 43 billion at the end of April.
Lebanon’s debt to GDP ratio is one of the highest in the world, exceeding 150 per cent, and the International Monetary Fund (IMF) says the Lebanese debt path is unsustainable.
Growth has been suspended between 1 and 2 per cent since the outbreak of the war in Syria in 2011. The country is under pressure from international donors, who pledged about $ 10 billion in soft loans in April to provide a credible plan to improve their fiscal situation.
Salameh said there was no timeframe for selling the bonds, which could happen “in stages.” The Government of Lebanon has been unable, owing to years of political tensions, to reform public finances. The central bank has maintained economic stability through stimulus and unconventional financial operations, using billions of dollars deposited by Lebanese expatriates around the world in Lebanese banks.
In 2016, the central bank carried out what is described by the IMF as “unconventional” financial engineering to strengthen foreign exchange reserves, maintain peg to the dollar and increase bank reserves.
Lebanon was then struggling to resolve a presidential vacuum crisis that lasted more than two years and adapt to the repercussions of the Syrian war. The growth rate of deposits in banks slowed down then, while foreign reserves declined.
Part of that financial architecture encouraged local banks to bring dollars to the central bank by buying their debts in local currency at preferential rates.