Moody’s Investors Service, the international rating agency, published on May 22, 2025 a credit opinion on the Government of Lebanon, maintaining the country’s “C” rating and stable outlook, a rating which reflects that losses for bondholders are likely to exceed 65%. The rating agency cited a set of credit strengths and challenges underlying Lebanon’s rating, with the former pivoting around the commitment of international donor support dependent on the implementation of the IMF reform program added the renewed reform momentum under the newly elected President and appointed government. On the other hand, credit challenges included the propagation of a harsh economic, financial & social crisis, a severely weak institutional & governance strength (thereby impeding reform implementation), and the sizeable human displacement & infrastructure damage resulting from the latest war. In parallel, Moody’s stated that the stable outlook indicates that Lebanon’s rating is likely to remain unchanged over the near future. The agency also mentioned that the country’s rating is unlikely to change unless fiscal consolidation and structural reform implementation are undertaken, an improvement in revenue generation capacity and a sizeable improvement in the country’s key debt dynamics (such as economic growth, interest rates, privatization revenues, and capacity to register large primary surpluses) on the other so as to guarantee debt sustainability in the future.

From another standpoint, it is worth clarifying that a rating by the agency takes into consideration four major elements, namely, economic strength, institutional and governance strength, fiscal strength, and susceptibility to event risk.  Lebanon scored “caa2” in economic strength given the steep economic contraction as well as deteriorating income levels, which pushed 80% and 36% of the population to below the poverty and extreme poverty lines on a respective basis. Furthermore, the above factors have been further exacerbated by the ramifications of the latest war. On a positive note, the agency pointed out that remittances are aiding in supporting income levels. On the institutional and governance strength front, Lebanon attained a score of “ca”, reflecting a frail governance environment characterized by an anemic fiscal policy effectiveness, yet pointed out that the recent political developments set the stage for reform implementation. The score also takes into account Lebanon’s default on its Eurobond payments. With respect to fiscal strength, the former was assessed as “ca”, a fact that portrays the government’s highly leveraged balance sheet (debt at 164% of GDP in 2024) that could result in large losses for creditors in the event of default. Lastly, Lebanon scored “ca” in susceptibility to event risk driven by the country’s liquidity risk & external vulnerability risk, added the high exposure of the banking sector to sovereign debt.

According to the report, the rating agency hailed the positive momentum that followed the recent war which inflicted some $8.5 billion in damages on the economy. In details, the rating agency stated that the filling of political vacuums was complemented by the appointment of Mr. Karim Souaid  as a new Central Bank Governor, who emphasized on the urgent need for reforms. The aforementioned return to fully functioning state institutions is essential to reversing the downward economic momentum (25% contraction in real GDP in 2020 followed by a brief stabilization before dipping by 7.5% in 2024). Accordingly, the rating agency is anticipating an economic growth of 2.5% & 3.5% in 2025 and 2026 respectively, noting that these figures can improve in the event of reform implementation. Finally, the rating agency hailed the amendments to the banking secrecy law (ratified by the government and parliament) and the new draft banking sector restructuring legislation (ratified by the government and under discussion in the parliament) as essential steps towards financial sector reform and a comprehensive debt restructuring.