S&P upgrades Lebanon’s local currency rating to CCC
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While S&P has raised Lebanon’s local currency rating, it has kept foreign debt in selective default with major challenges ahead.
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Protesters confront the police convoy transporting Riad Salameh, the former governor of Lebanon's Central Bank, upon his arrival at the court building in Beirut, Lebanon, Monday, September 9, 2024 (AP)
S&P Global Ratings has raised Lebanon’s long-term local currency credit rating to ’CCC’ from ’CC’, citing improved fiscal performance and progress on reforms, while affirming its foreign currency rating at ’SD’ (selective default). The outlook remains stable.
The ratings agency said Thursday that Lebanon’s government has demonstrated an improved capacity to service local currency debt, supported by fiscal surpluses over the past two years and steps toward reforms needed to secure a new IMF program.
Local currency debt has fallen sharply to around 2% of GDP (less than $1 billion) by the end of 2024, compared with nearly 100% of GDP before 2020. The decline followed a 98% depreciation of the Lebanese pound between 2019 and 2024.
'Reforms' under new leadership
Despite the crisis, the government has continued servicing local obligations and, in 2024, resumed interest payments to the Banque du Liban after a three-year suspension. It also pledged to begin repaying arrears this year.
The rating action follows parliament's election of Joseph Aoun as president and Nawwaf Salam as prime minister in January 2025. Since then, parliament has passed amendments to the Banking Secrecy Law and approved the Bank Restructuring Law. However, the key Financial Gap Law, which is needed to allocate past losses and compensate depositors, remains pending.
S&P cautioned that Lebanon still faces severe obstacles, including unresolved Eurobond defaults and regional instability. The agency does not expect significant progress on foreign debt restructuring before the 2026 parliamentary elections. It also warned that ongoing tensions between the Israeli occupation and Hezbollah, despite a ceasefire reached in November 2024, continue to hinder recovery.
Currency stabilization, debt outlook
Lebanon’s economy contracted by 6.5% in 2024, marking the third consecutive year of decline. In dollar terms, the economy has shrunk from $55 billion in 2018 to $28 billion in 2024. S&P projects a modest average growth of 2.3% in 2025–2026.
The Lebanese pound has stabilized at roughly 89,500 per US dollar since February 2024. Net government debt is projected to fall to 113% of GDP by the end of 2025, down from about 240% in 2022, due to fiscal surpluses, exchange rate stability, and inflation-driven nominal growth.
Meanwhile, the current account deficit, though still elevated, is forecast to narrow to about 18% of GDP over the next few years, compared to an average of 23% in 2023–2024.
Lebanon reforms bank secrecy
Lebanon's parliament approved crucial amendments to its banking secrecy legislation in April, a significant step toward meeting the International Monetary Fund’s (IMF) requirements for financial assistance. The reform is part of broader efforts to revive the country's economy, which has been in freefall since 2019.
A statement from Parliament Speaker Nabih Berri's office confirmed the passing of amendments to the law on banking secrecy and related monetary legislation. The changes grant regulatory bodies access to customer banking information, removing prior legal hurdles that protected account privacy.
The IMF and other international bodies have long insisted on structural reforms, including greater transparency in Lebanon's banking sector, to unlock billions in aid.
These reforms are crucial as Lebanese officials, including Finance Minister Yassine Jaber and Central Bank Governor Karim Souaid, meet with IMF representatives in Washington.
Economic crisis worsened by war
Since 2019, Lebanon's currency has lost significant value against the US dollar, pushing much of the population into poverty and restricting access to savings.
The recent Israeli war on Lebanon has compounded economic challenges, with the country now facing urgent reconstruction needs.
Bankers have been accused of enabling elite individuals to transfer large sums abroad during the crisis. The new laws are seen as a step toward holding financial institutions accountable and restoring confidence.
