Moody's Affirms Lebanon's 'C' Rating Amid Deep Crisis, Fragile Reform Prospects
Moody's Investors Service has reaffirmed Lebanon's sovereign credit rating at 'C,' underscoring the country's entrenched economic, financial, and social crisis that has persisted since 2020.
The rating reflects the agency's expectation that losses for holders of Lebanese sovereign bonds could exceed 65%.
Lebanon has been mired in a financial collapse since 2019, which intensified following the government's default on its sovereign debt in March 2020. This unraveling led to the dramatic devaluation of the national currency, hyperinflation, and a sharp deterioration in public services.
Despite numerous reform pledges, the country has remained locked in a downward spiral, deeply affecting the livelihoods of its citizens and the health of its economy.
In its latest report, Moody's noted that the newly appointed government under Prime Minister Nawaf Salam, who assumed office on February 8, 2025, has started to address some of these longstanding challenges.
Nevertheless, Lebanon continues to face major structural hurdles, particularly the need for comprehensive restructuring of government debt, the central bank, and the commercial banking sector. Securing international financial support from the International Monetary Fund and other global partners hinges on the successful implementation of these reforms.
Moody's acknowledged some recent positive steps. These include amendments to the banking secrecy law approved by Parliament on April 24, 2025, allowing regulators access to banking records for up to ten years.
Furthermore, the Cabinet approved a draft law on April 12, 2025, aimed at restructuring the banking sector while prioritizing the protection of small depositors. These measures are viewed as critical for unlocking external assistance.
However, the core challenge remains unresolved: how to distribute the estimated $70 billion in financial system losses among stakeholders, including the government, central bank, commercial banks, and depositors. Previous reform attempts have stumbled over this politically and socially sensitive issue, highlighting the difficulty in forging a unified national response.
Following a staggering 25% contraction in real GDP in 2020, Lebanon experienced a brief phase of relative stability before the economy shrank again by 7.5% in 2024 due to intensifying conflict on Lebanese territory.
Moody's forecasts a modest economic rebound in 2025, with growth projected at 2.5%, potentially rising to 3.5% in 2026, assuming an agreement on reform is reached.
The rating agency noted that Lebanon's economic strength is severely weakened by the collapse of its pre-crisis economic model, which depended heavily on foreign capital inflows. Institutional and governance quality remain among the weakest globally, despite recent reform efforts.
Lebanon's fiscal position is deeply strained, reinforcing Moody's outlook for significant creditor losses once debt restructuring is undertaken. Additionally, the country faces elevated risks related to political instability, fiscal liquidity, banking sector fragility, and external vulnerabilities, all of which are unlikely to improve before the restructuring process is complete.
Moody's does not expect Lebanon's rating to improve in the near term given the scale of its unresolved challenges.
Any future upgrade will depend on the pace of fiscal and institutional reforms, the government's ability to generate sustainable revenue, and the economy's successful shift to a more resilient growth model. Long-term debt sustainability will also require the ability to produce and maintain large primary fiscal surpluses.
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'Even when sanctions were partially eased in the past, most banks and companies, especially international ones, avoided Syria out of fear of getting blacklisted,' he said. 'Simply put, the word 'Syria' was enough to trigger overcompliance,' but a shift is noticeable now. He noted that some regional investors are already engaging with Syria. 'Some have already taken the decision to invest and are now looking into the technical aspects of it,' he said. 'There's a lot of momentum. It's looking very promising.' Since May 13, several regional investors have announced major projects. On May 29, Syria signed a strategic agreement with a consortium led by Qatar's UCC Holding to build four gas power plants and a 1,000-megawatt solar facility — a $7 billion investment expected to meet over half the country's electricity needs. 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