Rating agency Moody’s has welcomed the formation of a new government in Lebanon, breaking a nine-month political deadlock.
However, Moody’s has also warned that any credit boost for the country’s banking sector will be dependent on the successful implementation of major reforms.
A national unity government comprising a 30-member cabinet was announced by Prime Minister Saad Hariri on January, 31, 2019. The development will offer a “temporary respite” from the political uncertainty and prolonged economic stagnation that had led Moody’s to forecast GDP growth of just 1% in 2018.
Should the incoming government’s major reforms prove successful, it would help to improve wavering confidence among depositors and investors, raise the growth outlook and contain the government’s fiscal deficit, stated Moody’s.
Lebanon currently has one of the highest public debt-to-GDP ratios in the world, at around 150%. Furthermore, an $11 billion, five-year financial assistance fund from foreign governments and international donor institutions is currently withheld until the implementation of economic reforms.
The new cabinet is not without its controversies, not least the inclusion of three Hezbollah members, including the new health ministry, which has prompted warnings from the US state department about any misuse of state resources.
Lebanon’s Hezbollah leader Sayyed Hassan Nasrallah said the health ministry will be a “ministry for all Lebanese people”.
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