Moody’s Investors Service, the international rating agency, published on April 20, 2021 an issuer comment on the usable foreign currency reserves in Lebanon. In detail, Moody’s made reference to the Central Bank governor’s letter addressed to the caretaker Finance Minister on April 9 in which the Governor expressed the Central Bank’s concern with regards to its ability to continue to support the government’s current import subsidy program. The report cited the ongoing depletion of the usable foreign exchange reserves at BDL jeopardizing the mandatory foreign-exchange reserves if BDL continues to finance subsidized imports. Moody’s commented that using the mandatory reserves held at BDL amidst the persistent government deadlock would lead to an increase in banks’ counterparty risk thereby putting Lebanon’s remaining correspondent banking relationships at risk thus threatening the access to cross-border payment services for remittances, trade, and tourism.

Moody’s discussed two measures for the estimation of usable foreign-exchange reserves. The first measure nets out mandatory reserves from gross foreign-exchange reserves held at BDL to calculate the usable foreign-exchange reserves, which Moody’s believes fell to $1 billion as at end of February 2021. The second measure nets out the portion of gross foreign-exchange reserves that represents the counterpart to commercial banks’ net foreign liability position to arrive at an estimate of usable reserves which according to the agency have totally dried out since last year before the country’s sovereign default in March 2020.

The report mentioned that the current import subsidy program costs BDL circa $500 million per month. Furthermore, Moody’s noted that the Lebanese parliament is aiming to reduce the list of subsidized food products from 300 to 100 and to also introduce prepaid ration cards for households worth $1 billion per year. Finally, Moody’s warned that a permanent loss of correspondent banking relationships would increase Lebanon’s reliance on external funding to the point where cross-border payment & clearing services would remain impaired even after a complete debt restructuring, thereby preventing any potential recovery.