Moody’s Investors Service, the international rating agency, published on October 14, 2022 an issuer comment pertaining to the maritime border agreement between Lebanon and Israel following a decade of negotiations. According to the agency, the agreement is credit positive for Lebanon as it establishes the needed geopolitical security conditions for international energy companies to begin the exploration process and to recover Lebanon’s hydrocarbon resources. In addition, Moody’s stated that the agreement allows exploration to start at the Qana prospect on Block 9, noting that there are no confirmed hydrocarbon reserves and the exploitation of any reserves would take around 3 to 4 years. Moody’s commented that the recovery of potential gas resources will aid Lebanon in reducing its chronic power deficit and launch an economic recovery.

From another perspective, the agency mentioned that the maritime deal was struck at a time Lebanon’s power supply through EDL is at its lowest level amid the shortage in fuel supply. In this respect, the government is relying on fuel oil shipments from Iraq and is in the process of finalizing a World Bank financing deal to proceed with importing gas from Egypt through the Arab Gas Pipeline. In this vein, Moody’s commented that Lebanon’s ability to access World Bank funding is conditional upon the implementation of reforms which include an audit of EDL and a transition towards more cost-effective tariffs. In parallel, the agency noted that the $3 billion, 4-year IMF agreement is an opportunity for Lebanon to gain external support conditional upon the implementation of specific reforms, namely adopting appropriate legislations on capital control, bank secrecy, bank resolution, and a decision to unify the multiple exchange rates. According to the agency, the progress on the aforementioned reforms has been slow since the May 2022 parliamentary elections as a new government needs to be formed and a new president must be elected by the parliament in order to avert a presidential void after October 31, 2022.

Finally, Moody’s noted that Lebanon’s rating is likely to remain unchanged in the absence of a comprehensive debt restructuring as a result of the severity of the country’s macroeconomic, financial and social challenges in addition to Moody’s expectation of more than 65% loss for private sector creditors.