Lebanon Says Debt Plan to Erase Deficit Won’t Hit Bond Investors

(Bloomberg) -- Lebanon’s plan to wipe out its budget deficit next year relies primarily on the central bank as well as major cuts to payments to some state funds and the loss-making electricity company.

Nadim Munla, a senior adviser to Prime Minister Saad Hariri, said the central bank will waive coupon payments received from the Treasury as part of steps to lower the budget deficit to 0.6% of gross domestic product. Bond investors won’t be affected, he said.

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He said Banque du Liban, as the central bank is known, holds 65% of the country’s sovereign debt, which is mostly denominated in local currency.

“We wanted to send a clear message that Lebanon is serious about handling its budget deficit,” he said. The shortfall was just under 12% of GDP in 2018.

Hariri announced sweeping measures in a televised national address on Monday in an effort to end days of mass protests against Lebanon’s ruling establishment over rampant corruption and worsening living standards.

Munla said a cabinet reshuffle was still on the table and will be decided in the coming days.

The government will also stop borrowing at higher rates to finance the budget, he said. Capital spending will be covered by borrowing at “concessional” rates from outside the budget.

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