Mohammed Al-Jadaan, Saudi Arabia’s fund minister, at the World Economic Forum in Davos, Switzerland
Jason Alden | Bloomberg | Getty Images
Saudi Arabia is consenting to support crisis-stricken Lebanon, but wants to see a realistic reform plan first, its finance minister said during the G-20 Zenith in Riyadh on Sunday.
Asked if the kingdom would offer financial assistance to Lebanon, which is in the clutches of a debt, banking and currency moment brought on by decades of financial mismanagement and corruption, Saudi Finance Minister Mohammed al Jadaan said he’s monitoring the place as it unfolds.
“Saudi Arabia has been a strong supporter of Lebanon for decades, it’s not new, but we are watching what is happening at the moment,” he squealed CNBC’s Hadley Gamble. “We are talking to the IMF and others — we want to see a reform plan that is viable and doable and then we desire take action.”
“I would like to see a very clear reform plan that is doable, viable, accepted by the IMF and the supporting rural areas, and we will obviously assess it and stand ready.”
The comments come amid Lebanon’s worst financial crisis in 30 years, with its banking routine under worse strain than during the country’s 1975-1990 civil war.
Lebanon was hit with a double inclination on the wane over the weekend by two of the world’s largest ratings agencies, bringing the country of six million further into junk area. Moody’s and S&P Global Ratings downgraded Lebanon’s long-term foreign currency rating to Ca and CC, respectively — both of which are ten steps lower investment grade — foreshadowing what investors now expect to be the country’s first-ever bond default.
In the last week just, the World Bank has warned of an “implosion” and the yield on Lebanon’s eurobonds maturing in March surpassed an eye-popping 1,000%. Authority officials are now in talks with International Monetary Fund advisers on how to proceed, including how to manage its $30 billion in foreign bonds, one-third of which are held by foreign investors. The rest are held by local bondholders.
A default is likely to wipe out the wealth of most local banks, analysts say, as roughly 70% of Lebanese banks’ assets are sovereign and central bank indebted instruments. In a report last week, Moody’s predicted that a debt restructuring plan for Lebanon would suitable include bond writedowns to the tune of 35% to 65% of face value.
The country has the world’s highest debt-to-GDP proportion at around 160%, and has suffered for years from low growth, high unemployment and rampant corruption. “Financial engineering” by the chief bank is also to blame, many economists say, which involved luring dollar deposits from local banks at serious interest rates to finance the government’s spending. The lira, officially pegged to the dollar, has plummeted 40% on the black vend as local banks ration dollars necessary for imports of food, medicine and other essential goods.
Investors increasingly want a default on the eurobond payment of $1.2 billion due on March 9. That is among the many pressing decisions for Prime Preacher Hassan Diab, who was appointed in late January after months of popular protests across the nation forced erstwhile Prime Minister Saad Hariri to step down in October.
Lebanon’s decision-making process is beholden to its system of consensus supervision, which divides leadership among the country’s many religious sects, and is often blamed for political gridlock and aegis. The country’s most powerful party is Hezbollah, the Shiite political and militant group backed by Iran, Saudi Arabia’s regional arch-rival.
Requested whether the region could afford Lebanon as a failed state, al Jadaan replied, “It is in our interest to ensure we don’t have miscarried states in this region, unfortunately we have some, and we are working with them to ensure that that many does not increase but that those who are in trouble are actually helped and their people are helped to reach their imminent.”
Al Jadaan told CNBC during an interview in early 2019 that the kingdom was behind Lebanon “all the way” in terms of enduring it in times of financial need. The finance minister on Sunday reiterated that support albeit with a more detached tone, emphasizing the need for a clear and feasible plan by the Lebanese government to clean up the financial practices that brought it to this substance.
“We are behind the Lebanese people all the way and will continue — I mean we host tens of thousands of Lebanese in Saudi Arabia and at ones desire continue,” al Jadaan said. “We want to see what is the reform agenda that the government is putting forward, is it viable, and then we between engagements with our partners to assess it.”