(Bloomberg) -- Lebanese Prime Minister Saad Hariri is traveling to Saudi Arabia and France to follow up on efforts to secure financial support for his debt-laden country and show it's serious about reforms.
Hariri went to Riyadh, the Saudi capital, on Wednesday, ahead of a trip to Paris to meet President Emmanuel Macron. In France, talks will focus on fiscal and governance reforms needed to unlock $11 billion in funding pledged by international donors last year.
Finance Minister Ali Hasan Khalil said Lebanon is in talks with “friendly countries” about them investing in a planned bond issuance.
“All options are open. All these things could help us, whether subscribing to bonds or deposits at the central bank's account to boost foreign currency reserves,” Khalil said Wednesday at a press conference in Beirut to discuss the draft budget figures.
Earlier, Saudi Finance Minister Mohammed Al-Jadaan said his country was in talks with the Lebanese government about financial support. Qatar has said it had bought some Lebanese Eurobonds, part of its pledge to buy $500 million of the debt, though Lebanon's central bank governor later told Bloomberg the promised investments had not arrived.
Potential assistance could help allay investor concerns that Lebanon is on the brink of a financial meltdown sparked by political turmoil and doubts over its ability to repay debts.
Lebanon's dollar bonds rallied after Al-Jadaan's comments. Their average yield dropped 110 basis points on Wednesday, the most in more than 15 years, according to Bloomberg Barclays indexes. At 15.6%, Lebanon still has one of the highest average yields of any sovereign globally.
“Saudi support would be positive for Lebanon by delivering a clear signal to depositors and investors that the kingdom stands by its statement earlier this year that it ‘will support Lebanon all the way,'” Farouk Soussa, an economist at Goldman Sachs Group Inc. in London, said in a note. “That said, Saudi support, even taking into account the lasting positive impact it could have on Lebanon's external financing conditions, would not address the country's underlying economic imbalances.”
Khalil said the country is going through a “very difficult economic and fiscal situation” and that its debt to gross domestic product could reach 161% in 2022 if officials fail to implement reforms.
The finance minister said the government has so far complied with spending cuts it approved in 2019, yet failed to cut debt-servicing costs and boost revenues as planned.
Khalil spoke about the ministry's 2020 draft budget, which he said targets a primary surplus of 3.2% and a deficit of 7.4% of GDP by boosting tax collection, fighting tax evasion and reducing electricity deficit.
--With assistance from Paul Wallace.
To contact the reporter on this story: Dana Khraiche in Beirut at dkhraiche@bloomberg.net
To contact the editors responsible for this story: Lin Noueihed at lnoueihed@bloomberg.net, Alaa Shahine
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