Here’s a brainteaser for investment-banking job candidates. How can Lebanon – a country with debt running around 150% of its roughly $60 billion GDP, massive deficits and under $30 billion in foreign reserves – achieve financial stability? Lazard, the country’s newly approved adviser, will earn its fees if it can solve this puzzle.
Lebanon has characteristics that make it especially hard to restructure debt without imperiling local banks or increasing political instability. The issue is coming to a head, too, with a $1.2 billion payment on foreign-currency debt due on March 9.
Restructuring Lebanon’s foreign-currency-denominated debt alone – which foreigners are more apt to hold – wouldn’t be enough. Only about 40% of the country’s nearly $90 billion debt stock is in hard currency. That means even if creditors took a 60% haircut, the debt-to-GDP ratio would still be around 120%, according to Fitch Ratings. That’s unsustainable.
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