Central: The Government Of Lebanon Will Begin Issuing Bonds In Local Currency At Market Interest

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Central: The Government Of Lebanon Will Begin Issuing Bonds In Local Currency At Market Interest

By Reuters 3 hours ago

The central bank said on Tuesday that the government would begin to issue local currency bonds at market interest rates to encourage banks to buy debt instruments rather than put their money in the central bank to seek more attractive interest rates.

"The country now has to operate bonds like the central bank, giving interest to the state like the benefits of the Banque du Liban," Riad Salameh, governor of the Banque du Liban, told Reuters, adding that the benchmark 10-year benchmark interest rate was 10.5 percent.

Lebanon's debt-laden financial system has encouraged commercial banks to deposit foreign exchange with the central bank in pursuit of high returns, while Salama seeks to maintain high levels of foreign reserves to defend the pound pegged to the dollar amidst the recession of the economy and the pressures of political stalemate. .

As a result, commercial banks are gradually ceasing to participate in weekly Treasury Tenders.

This means that the central bank is forced to buy government debt instruments, taking losses that are the difference between the interest it receives and the high interest it pays to commercial banks to keep money flowing into it.

Salama said he agreed with Finance Minister Ali Hassan Khalil on Tuesday to plan to attract funds to government debt issues, adding that the banking sector is able to finance external and internal government debt in 2019.

"Regulating the repayment of foreign and domestic debt is within our capabilities and within the banking sector's capabilities," Salameh said in televised comments after his meeting with Khalil.

Under the plan, commercial banks will replace their dollar deposits with the central bank to be replaced by bonds in Lebanese pounds at market interest rates. Salameh said the issues would not be "short-term bonds, but 10, 15 or 20 years".

Salamah added that banks are in a position to finance government debt, given the financial engineering and operations carried out by the central bank over the last three years.

"So the situation will continue to be stable, both at the lira exchange rate and at the credit level in Lebanon," he said.

Lebanon has the third highest debt to GDP ratio in the world and stagnant growth. The IMF said in June reforms were urgently needed to put debt on a sustainable path.

Despite the passage of seven months to the parliamentary elections, Prime Minister-designate Saad Hariri is still unable to form a government of national unity, with the conflict of political blocs to positions in the new government.