by Dana Halawi

BEIRUT, March 5 (Xinhua) — Standard & Poor’s (S&P) recent revision of its outlook on Lebanon from stable to negative is a warning for the country to implement quick and necessary reforms, local economists said.

“S&P considers that investors’ confidence will decline in the absence of significant reforms and measures to reduce the fiscal deficit, which in turn, may lead to a deceleration in non-resident deposit growth and a decline in foreign currency reserves which may affect Lebanon’s ability to serve its foreign currency debt,” Nassib Ghobril, head of the economic research department at Byblos Bank, told Xinhua.

Ghobril explained that the negative outlook means that S&P has doubts about the government’s seriousness in implementing reforms.

“If the government implements its reforms, the outlook will go back from negative to stable. But if not, then S&P may further downgrade its rating,” he said.

The International ratings agency S&P revised its outlook on Lebanon to negative from stable late Friday night.

S&P said it could lower its ratings on Lebanon within the next 12 months if “political stasis causes fiscal deficits to rise while banking system deposit inflows, the government’s key funding source, slow further.”

Ghazi Wazne, a Lebanese independent economist, agreed with Ghobril that the change by S&P of its outlook on Lebanon serves as a warning for Lebanon to implement necessary reforms.

According to Wazne, S&P’s recent move is based on several factors.

“S&P changed Lebanon’s outlook because it knows that the public debt will keep on increasing in the coming period because of the absence of reforms while growth will remain slow,” he said.

The U.S.-based financial services company also believes that the deficit in Lebanon’s trade balance and balance of payments will continue so that pressure will be exerted on the monetary and financial situation, he added.

“The complicated situation of the region will continue to have an impact on Lebanon,” the Lebanese economist noted.

Furthermore, such downgrade decisions also affect investors’ sentiments.

“Investors will ask for a higher return on investment when they invest in a country that is not highly rated by rating agencies,” Wazne said.

Depositors may also want higher interests on their deposits in this country or even consider withdrawing their deposits, he added.

However, Wazne seemed to be optimistic about the reforms that were included in the ministerial statement of the cabinet.

“I am optimistic that good changes will take place. In my opinion, the fiscal deficit in 2019 will be lower than in 2018 because the government has no other alternative but to implement reforms,” said Wazne.

The government will freeze recruitment and increase in salaries in the public sector, and increase its revenues with a better collection of taxes, he explained.

Meanwhile, Ghobril said the government should at least send positive signals about intended reforms.

“We know that reforms are medium to long term propositions but the government needs to send signals to the market that it is serious about reforms especially that it took nine months to form the cabinet, which is bad for Lebanon’s image,” Ghobril concluded.

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