In its latest report, released on Monday, Standard & Poor’s (S&P) downgraded Lebanon’s foreign currency credit rating to SD (Selective Default), reflecting the government’s ongoing failure to meet its foreign currency debt obligations since March 2020.

S&P stated that it would consider upgrading the long-term foreign currency rating only after the government completes its commercial debt restructuring. Any future rating will be based on Lebanon’s creditworthiness post-restructuring, with particular focus on the debt burden and the outlook for economic policy.

Simultaneously, Lebanon’s local currency credit rating was set at CC, with S&P warning that the government might restructure its local currency debt as part of a broader economic program. The agency highlighted that deficiencies in public sector administrative capacity could threaten timely debt service.

S&P further cautioned that the local currency rating could be downgraded to SD if the restructuring includes cuts or extensions to local currency debt maturities. Additionally, a downgrade could occur if the government fails to meet its obligations to commercial creditors due to administrative restrictions. Although this is not the agency’s base case scenario, it remains a concern given the ongoing political instability in Lebanon.

Despite this grim outlook, which mirrors the country’s broader political, economic, and administrative challenges, S&P suggested that it might revise the outlook to stable or even upgrade the local currency rating if the likelihood of a distressed debt exchange diminishes and domestic economic policymaking shows signs of improvement. However, given the current situation, such reforms appear unlikely.

In response to the S&P report, Lebanon’s Ministry of Finance acknowledged that the assessment was part of the regular credit rating process and was based on recent discussions between S&P and local stakeholders. The Ministry emphasized that it had coordinated several meetings between the agency and relevant Lebanese parties, including the Central Bank, to ensure that the rating reflected the actual financial, monetary, and economic conditions in the country.

The Ministry noted that it had provided S&P with available data on public finance developments, particularly concerning the public debt situation, despite the significant challenges in publishing accurate figures. This was in contrast to Fitch’s decision to cease issuing ratings for Lebanon due to a lack of information.

The Ministry attributed the difficulties in data provision to administrative obstacles, including reduced human and technological resources at the Ministry, a consequence of Lebanon’s ongoing crises. Additionally, the Ministry pointed to sharp exchange rate fluctuations and the existence of multiple exchange rates in recent years as factors preventing it from publishing figures that accurately reflect the real situation. Efforts are being made to overcome these obstacles, with the Ministry aiming to resume the regular publication of financial statements according to international standards, with support from funding entities and specialists.

S&P’s decision to continue issuing ratings, unlike Fitch, indicates its reliance on incomplete data not fully provided by the Ministry of Finance, which operates in an environment of significant financial uncertainty. This reliance has led to several inaccuracies in S&P’s report, according to Nassib Ghobril, Head of Research at Byblos Bank and an economic expert.

In an interview with Al-Modon, Ghobril pointed out that S&P’s report contained erroneous figures, despite the Ministry of Finance providing its data, along with figures from the International Monetary Fund (IMF). For example, S&P reported Lebanon’s Gross Domestic Product (GDP) for 2021 as $14.5 billion, while the actual figure was $19.8 billion. Similarly, the agency estimated GDP for 2022 at $16 billion, whereas the IMF had raised the figure to $20 billion. Such discrepancies affect the calculations of the public debt deficit, external current account deficit, and overall foreign currency public debt ratios, among other metrics.

However, correcting these figures does not change the gloomy reality that Lebanon is currently going through. Ghobril does not dispute S&P’s overall assessment, particularly its analysis of the lack of reforms and the ongoing political and geopolitical risks.

Despite the bleak situation, Ghobril noted that the report's content does not introduce any significant new developments for Lebanon, expressing surprise at the government’s continued inaction regarding negotiations with Eurobond holders, a crucial step for finalizing an agreement with the IMF and a necessary gateway to emerging from the crisis, alongside other IMF-mandated conditions.