Moody's placed Lebanon's Caa1 issuer rating under review for downgrade, citing a significant tightening in external financing conditions for the country due to domestic and geopolitical risks, including renewed tensions with Israel.
The ratings action also reflects a reversal in bank deposit inflows, a key resource for Lebanon in meeting its annual government financing needs of more than 30% of GDP, according to Moody's.
"Together, these have aggravated already worsening balance of payments dynamics," the rating agency said. "Anticipated external financial assistance has not yet been forthcoming and capital market access at sustainable rates remains elusive."
Moody's said the downgrade review may last for more than the usual 90 days and would allow the rating agency to assess Lebanon's progress in adopting its 2020 budget as planned before the end of 2019.
The rating agency would also review whether Lebanon could secure financial support from allies in the Gulf Cooperation Council that could ease immediate liquidity risks and help drive longer-term growth.
Moody's warned that without renewed capital market access or external financial assistance, Lebanon's debt service payments in 2019 and 2020 would consume its usable liquid foreign exchange resources. This could destabilize the currency peg or trigger debt rescheduling or other liability management exercise that constitute a default, the rating agency said.
