--- title: "Eurobonds and Resolving Lebanon's Financial Crisis | Ghazi Mahmoud" url: https://ghazimahmoud.com/en/articles/2024-07-03-0cdb33/ lang: en description: "The word \"crisis\" has almost become the headline for every issue concerning the state in Lebanon, across its public administrations and services. The crisis of public administrations encompasses civil registries, land registries, the Car and Vehicle Registration Authority, and other departments." --- [All articles](https://ghazimahmoud.com/en/articles/) # Eurobonds and Resolving Lebanon's Financial Crisis [Brig. Gen. (Ret.) Dr. Ghazi Mahmoud](https://ghazimahmoud.com/en/about/) 3 Jul 2024 · 5 min read [Banking and money](https://ghazimahmoud.com/en/articles/money/)[The Lebanese economy](https://ghazimahmoud.com/en/articles/leb/) The word "crisis" has almost become the headline for every issue concerning the state in Lebanon, across its public administrations and services. The crisis of public administrations encompasses civil registries, land registries, the Car and Vehicle Registration Authority, and other departments. Meanwhile, the crisis of public services is not limited to electricity, road maintenance, drinking water authorities, waste treatment, and sanitation, among many other crises. Yet the most prominent crisis remains that of public debt and public finances, as it affects all state administrations and public services. Within this context, the issuance of Lebanese treasury bonds in foreign currencies (Eurobonds) stands as an expression of the public debt crisis and one of its clearest direct manifestations. The Lebanese government has resorted to borrowing in US dollars since 1994, in the wake of growing public debt caused by the persistent deficit in the 1993 budget. Perhaps one of the reasons for turning to Eurobonds was the declining appetite among domestic capital holders to subscribe to bonds denominated in the national currency, despite their high interest rates. In a report for 1994, Banque du Liban considered the issuance of Eurobonds an achievement for Lebanon, as the first Arab country to turn to borrowing from international financial markets. It escaped the author of the report that for the state to borrow in a foreign currency from which it has no steady income is a risky undertaking, since any rise in the value of that currency against the lira increases the size of the public debt and leaves the state unable to meet its obligations. The first tranche of Eurobonds issued by the Lebanese government came on October 14, 1994, valued at $400 million and maturing in 1997, three years after its issuance. These bonds were divided into three denominations: $1,000, $10,000, and $100,000. Subsequent Eurobond issuances followed on an annual basis and with longer maturities than their predecessors, with some maturities reaching ten years instead of three, while their interest rates ranged between 7.4% and 10.89%. Eurobonds were adopted because their interest rates were lower than those denominated in the Lebanese lira, in an attempt to reduce the cost of public debt and relieve the domestic financial market of the pressures caused by state borrowing. Issuing Eurobonds made it possible to extend public debt maturities, after the maturities of bonds in the national currency had been limited to one year on the one hand, and also made it possible to reduce borrowing costs, which in some issuances had approached 35%, on the other. Most Eurobonds were issued to buy back maturing debts and their interest. On the eve of the suspension of due installment payments in March 2020, the total face value of these bonds stood at approximately $13.31 billion, with maturities extending until 2036. Meanwhile, the trading price of Lebanese Eurobond issuances had fallen to less than 38% of their face value at maturity. Suspending payment on Eurobond obligations on March 7, 2020 constituted another crisis added to the sum of Lebanon's crises, and was not the cause of the financial crisis that continues to batter the country. Indeed, the worsening of public debt and its rising ratio to domestic output led to growing doubts among domestic and foreign creditors regarding the solvency of the Lebanese state and its ability to repay, leaving Lebanon unable since 2017 to sell its bonds in global financial markets. It is worth noting that Lebanon's obligations in foreign currencies are not limited to Eurobonds, but also include the concessional loans it obtained under the resolutions of the Paris I, II, and III conferences. Notably, at the end of 2000, shortly before the Paris I conference convened, the ratio of Lebanese public debt to domestic output had reached 151%, while the cost of servicing the public debt accounted for 89% of total state revenues. Yet all these conferences achieved was to widen the Lebanese authorities' margin of maneuver to exercise relative control over the public debt crisis, contain its present risks, and postpone its maturities, without leading to a solution. Neither Eurobond issuances, nor concessional loans, nor the grants provided by the successive Paris conferences since 2001 proved effective against the persistent deficit in the public budget. Nor did the attempts of the CEDRE conference succeed in urging the Lebanese government to undertake structural reforms capable of increasing state revenues and raising their ratio to gross domestic product, in addition to rationalizing spending and managing and containing the public debt by implementing a fiscal policy that helps reduce the budget deficit. Suspending payment on Eurobond obligations was justifiable on the eve of the decision, particularly since the price of Eurobonds in financial markets was limited to around 38% of the face price, or just 38 cents, leaving no justification for paying their face value of 100 cents. Today, however, the time has come for the government to work on buying back Eurobonds from their foreign holders, especially as the price of Eurobonds and their accrued interest now approaches 7 cents, the lowest price recorded by sovereign bonds, meaning that a sum of $1 billion suffices to retire $10 billion in debt. Based on the above, stalling in addressing the Eurobond crisis deprives Lebanon of the opportunity to benefit from the low price these bonds have reached, since any positive domestic development, such as the election of a credible president of the republic, will inevitably lead to a rise in the price. Stalling may also result in hedge funds specializing in buying distressed debt, such as Lebanese Eurobonds, acquiring them at low prices, only to subsequently file lawsuits aimed at obtaining the best possible price to enable them to make profits. State acquisition of Lebanese Eurobonds at current low prices is no less important than finding a solution that ensures depositors recover the bulk of their deposits in Lebanese banks. The more the Lebanese state rids itself of its external obligations at an appropriate cost, the greater its capacity to meet its domestic obligations. Otherwise, the Lebanese will pay with their future and the future of their children the price of officials' inaction and hesitation, after having already paid out of their life savings the price of those officials' disregard for their responsibilities and their squandering of the nation's resources. Translated from Arabic with AI. [Read it in Arabic](https://ghazimahmoud.com/articles/2024-07-03-0cdb33/) ## Published in - [Channel 23](https://ch23.com/Article/176856/سندات-اليوروبوند-وحل-أزمة-لبنان-المالية) - [OZ Arab Media](https://ozarab.media/سندات-اليوروبوند-وحل-أزمة-لبنان-المال/) ## More on banking and money [All articles on this subject](https://ghazimahmoud.com/en/articles/money/) [3 Jul 2024 · Eurobonds and the Solution to Lebanese’s Financial Crisis · LinkedIn, OZ Arab Media ](https://ghazimahmoud.com/en/articles/2024-07-03-57915d/) [23 May 2024 · The 2025 budget and Banque du Liban reserves · OZ Arab Media ](https://ghazimahmoud.com/en/articles/2024-05-23-c45765/) [22 May 2024 · The 2025 Draft Budget and Banque du Liban's Reserves · Channel 23, Radar News ](https://ghazimahmoud.com/en/articles/2024-05-22-296120/)