Bank of America Global Research recently issued a report titled “Lebanon – are the Eurobonds Recoverable?” in which it assessed the recoverability of Lebanese Eurobonds under the umbrella of three scenarios for Lebanon going forward. In details, BOA commented that the key question lies in whether the Eurobonds are recoverable, rather than the effective recoverable value, with the answer to the question hinging on the desire of the political class to implement an International Monetary Fund (IMF) program. In this regard, BOA revealed that the political class’ poor track record over the past two years does not provide a good indication to its commitment to IMF reforms. As per BOA, a key element in determining the trajectory of policy making would be the usable reserves of BDL, which according to BOA’s analysis of the government’s draft financial sector plan seem to be higher than previously estimated. BOA commented on the IMF’s current mission in Lebanon, stating that while the possibility of striking a deal before the elections cannot be ruled out, an analysis of similar cases with Emerging Market countries reveals that such deals are unlikely unless the IMF can obtain assurances from the political class on its commitment to such a program after the elections. In this regard, Bank of America revealed that while attaining such an agreement will be well received by the market, its implementation may prove challenging. Then, Bank of America conducted a scenario analysis on Lebanon’s prospects based on the possible outcomes of the upcoming elections and accordingly outlined three scenarios. The first scenario, which was assigned a low probability of occurrence and labeled political change, assumes that the civil society and opposition movements will gain a majority in the upcoming elections. In the event the first scenario materializes, a reformist government would garner huge support from the international community; resulting in a deal with the IMF, sizeable FX inflows, a remarkable appreciation in the real effective exchange rate and a rapid economic recovery. The second scenario, labeled stabilization and assigned a medium probability by BOA, assumes that the civil society and opposition movements will only gain a minority in the upcoming elections, and the reigning political class reaching a deal with the IMF before the elections and the avoidance of an institutional vacuum in the aftermath of the elections. This scenario would lead to a stabilization of the economy, yet the recovery would be significantly slower than that in scenario 1. In addition, Bank of America expects a deep Eurobonds restructuring, i.e. at relatively low prices, given the large government indebtedness and the needs for further borrowing in the future for recovery and reconstruction. Also under this scenario, BOA does not envisage a restructuring deal before mid-2023, and in the event a political vacuum prevails the restructuring could be pushed until early 2024. The third scenario, labeled status quo and assigned also a medium probability, assumes that the current political class will back away from a deal with the IMF. According to Bank of America, on the short term, this would lead to a further depreciation in the local currency and an economic contraction in the second half of the year 2022. On the medium term, this scenario would imply that the economy has not yet reached its trough, and that when it reaches this level, the economic recovery will be slow, leading to a “lost decade” for the Lebanese. The lirafication of FX deposits would take several years, leading to a rise in monetary aggregates and accordingly a further depreciation of the pound. This depreciation, however, could push the current account into positive territory, which would be vital to replenish BDL’s foreign currency reserves. It is unclear, however, whether the status quo scenario will be sustainable as it may lead to a social implosion. BOA also commented that they believe that Eurobonds may not be recoverable under this scenario. As far as the lirafication of foreign currency deposits is concerned, BOA expected the process to take anywhere between five to ten years, taking into account that the average monthly withdrawals of foreign currency deposits over the October 2019 – December 2021 period stood at $0.8 billion.