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Lebanon’s caretaker government has edged it towards economic crisis

Feb 04

Lebanon’s caretaker government has edged it towards economic crisis

Its economy is growing slowly and is overburdened by debt

PITY THE finance minister who must instil confidence in Lebanon, which has the fifth-highest public-debt burden in the world, at 150% of GDP. But Ali Hassan Khalil did a staggeringly poor job of it when he told a local newspaper his country was ready to default. “It’s true that the ministry is preparing a plan for financial correction, including a restructuring of public debt,” he said in an interview published on January 10th. Within a day its bonds fell to a record low. Mr Khalil soon clarified that he meant rescheduling, not restructuring. For ratings agencies the distinction is moot. On January 21st Moody’s downgraded Lebanon’s bonds even deeper into junk.

In a normal country, one banker mused, Mr Khalil’s comments might be a sackable offence. Lebanon is not a normal country. Nine months after the first parliamentary election in nine years, nobody has formed a government. The prime minister-designate, Saad Hariri, is stuck in a dispute with six Sunni MPs aligned with Hizbullah, the powerful Shia militia-cum-party. Parliament is frozen. There is no budget for 2019. Even if Mr Hariri wanted to fire his finance minister, doing so would lead to weeks of haggling over a replacement.