Lebanon's Bond Buyer of Last Resort Gets Hint of Saudi Pushback
(Bloomberg) -- Qatar threw a $500 million lifeline to Lebanon because of what it sees as its mission to be the Middle East’s emergency lender to nations in distress, according to the country’s foreign minister.
Not to be outdone, Qatar’s regional rival Saudi Arabia vowed less than a day later to support one of the world’s most indebted nations “all the way.”
For the small gas-rich emirate, the rationale for buying Lebanese government bonds is to secure a good investment and help steady a country whose stability is “very important” to Qatar, said Sheikh Mohammed Bin Abdulrahman Al Thani, who’s also the chairman of the country’s sovereign wealth fund. Manulife Asset Management has said that Qatar’s plan is reassuring investors that there will be “a buyer of last resort” for Lebanese Eurobonds.
“Qatar has been an active player regionally in stabilizing different countries -- Lebanon is just one among them,” the foreign minister said Tuesday in an interview with Bloomberg Television’s Haslinda Amin at the World Economic Forum in Davos, Switzerland. “We took our decision both based on our assessment to stabilize the economy and also as an investment decision.”
As the world’s biggest exporter of liquefied natural gas, Qatar is frequently thrust into the role of benefactor, doling out cash and promises in a region riven by feuds. The foreign minister, one of two royals in their 30s entrusted last year to run the Qatar Investment Authority, the country’s $320 billion sovereign wealth fund, said Lebanon’s president had outlined his nation’s predicament to the Qatari emir at an Arab economic summit in Beirut. Qatar announced its decision on Monday.
Among other commitments, last year Qatar extended a $500 million package to Jordan and made a deposit at Egypt’s central bank in 2012.
At the height of Turkey’s financial crisis in 2018, Qatar’s emir, Sheikh Tamim bin Hamad Al Thani, met President Recep Tayyip Erdogan and pledged to invest $15 billion in the country. Sudan’s President Omar al-Bashir also planned to travel to Qatar this week for talks with the emir as protests over living costs continue at home.
But geopolitics are now casting a shadow over its largess. Since June 2017, Qatar has faced a boycott by its larger neighbors Saudi Arabia and the United Arab Emirates, who accuse it of interfering in their internal affairs and getting too close to Iran. Qatar denies those allegations.
Saudi Arabia didn’t wait long to respond after Qatar announced its decision to buy Lebanese bonds.
“We are interested to see stability in Lebanon and we will support Lebanon all the way,” Saudi Finance Minister Mohammed Al-Jadaan told CNBC in Davos on Tuesday, providing no further details. “We are also determined to make sure that we play our role as a catalyst of stability in the region.”
Political disputes between a pro-Saudi bloc and the Iranian-backed Hezbollah have prevented the formation of a government since May, undermining plans for reforms that would unlock $11 billion in aid. In 2017, Saad Hariri, who’s now Lebanon’s caretaker prime minister, flew to the Saudi capital and was pressured to announce his resignation only to return to Beirut and be reinstated.
Lebanon’s struggling economy was in need of a cash infusion from Qatar to reassure bond holders reeling from mixed messages by officials about the possibility of debt restructuring this month. Finance Minister Ali Hasan Khalil, who roiled bond markets this month by suggesting the government may restructure its debt, has said Lebanon is hopeful that Qatar’s decision is a “prelude” to a show of support by other countries and institutions.
Qatar’s purchase alone is unlikely to be a game changer for Lebanon. The central bank has maintained stability through stimulus measures and financial engineering, made possible by the billions of dollars placed in Lebanese banks by the nation’s diaspora.
As deposit inflows have slowed and reached an estimated $4 billion to $5 billion in 2018, Moody’s Investors Service said Lebanon would need as much as $7 billion to cover this year’s fiscal deficit and Eurobond maturities without tapping foreign-exchange reserves.
Lebanon’s public debt, estimated at over 160 percent of gross domestic product this year, is projected to rise to near 180 percent by 2023, second only to Japan’s, according to the International Monetary Fund. Moody’s downgraded Lebanon’s credit rating deeper into junk on Tuesday, hours after Qatar unveiled its plan.
Asked about the sustainability of the debt burden, Qatar’s foreign minister said Lebanon had never defaulted in paying interest.
“We are going to work out together with them,” Sheikh Mohammed said. “We have trust and confidence in the economy and the people of Lebanon.”
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