Lebanon is forced to default on debt as a financial crisis consumes the economy

The Prime-minister of Lebanon has announced that the country in Western Asia is to default on a huge debt repayment of US$1.2 billion which was due to be paid on March 9^th.

The Lebanese economy has been trying to fight off a financial crisis for the last year, and in doing so has amassed vast levels of debt, most recently calculated at around 170% of GDP.

With foreign currency reserves plummeting, the government has been forced to default on the Eurobond debt as it needs to be repaid in the currency from which it was originally taken out. With around US$30 billion of Eurobond debt in total, the government is now hoping that with the assistance of the IMF, the debt can be restructured. This will allow the government to address their cash flow problems, whilst also giving them some breathing space to attend to the other serious economic crises throughout the country.

In addition to the spiralling debt, inflation crept up to 10.4% in January 2020, unemployment is running at 6.2%, and according to the governor of the Lebanese central bank, “no-one knows where the Lebanese pound is heading”. For now, the currency is surviving as it is pegged to the US dollar, but a black market exists where people are desperately trying to purchase foreign currency to protect themselves from the growing instability. Day by day, the currency on the black market is depreciating in value.  

These are very testing times for Lebanon, which in addition to the economic woes described above, has also been engulfed by social unrest since October last year which resulted in the resignation of the then prime-minister. It is going to take a lot of hard work and support of the IMF to get the economy back on track.