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Six years after its March 2020 Eurobond default, Lebanon has not opened restructuring negotiations, and the economy is contracting again under conflict. This revised and expanded edition of the road map asks where Lebanon actually sits on the speculative-grade scale and what it would take to become, once again, a sovereign that pays. It defines three categories, corresponding broadly to the BB, B and CCC-to-default ranges, and sets indicative thresholds across four pillars: governance, the economy, fiscal capacity and the internal balance sheet.
The paper argues that Lebanon breaks the measurement rather than merely breaching the lowest floor. The sovereign, the central bank and the commercial banks are insolvent at the same time and are each other's principal creditor; frozen deposits are, in economic substance, internal public debt; and headline indicators such as a fiscal surplus or gross reserves describe suspension rather than capacity. Until the restructuring perimeter across Eurobonds and deposits is defined, no debt-sustainability analysis can be closed.
For creditors, depositors and policymakers, the paper converts four reform steps into entry conditions for Category 2, the instrument that delivers each, and a sequence in which nothing else is bankable before the debt perimeter and an IMF programme are in place.
Key findings
- Eurobond claims of USD 42 bn (about 120% of GDP) sit alongside a bank-central bank financial gap of USD 80-83 bn, bringing consolidated claims close to 3.5 times GDP.
- The proposed restructuring combines a Eurobond haircut of 65-75% with 15-20-year maturities and converts the deposit gap into senior, long-dated securities ranking depositors ahead of bondholders.
- Revenue must rise from about 17% of GDP to 18-20% through a wider base rather than higher rates, while inflation must fall from 17.5% to below 15%.
- Abolishing the exclusive import-agency regime (Legislative Decree 34/1967) and activating Competition Law 281/2022 is presented as the fastest non-monetary lever on inflation.
- Year one requires the resolution-law amendments, the financial-gap law with depositor priority, the income-tax law, the medium-term fiscal framework and an active IMF programme.
- By years three to five, a post-service primary surplus of 1-2% of GDP, rebuilt net reserves and a small benchmark issue would mark entry into Category 2.
Summary of the paper; the full analysis is in the PDF.