Qatar plans to buy $500m worth of Lebanese sovereign bonds in an effort to boost the troubled economy of a country that is often caught between regional rivals seeking to expand their influence.
Sheikh Mohammed bin Abdulrahman Al Thani, Qatar’s foreign affairs minister, announced the plan on Monday, according to Qatar’s state-run news agency. It did not give further details as to whether Qatar planned to buy foreign-currency bonds or local-currency debt.
A crucible for the Middle East’s political and sectarian troubles, Lebanon is a focus of a regional proxy war between Gulf rivals Saudi Arabia and the United Arab Emirates on one side and Qatar and Iran on the other. Tehran backs the powerful Lebanese Hizbollah Islamist movement, and Beirut’s traditional supporter, Riyadh, has been frustrated at its failure to limit Hezbollah’s clout.
Prices on the latest Lebanese 10-year eurobond rose slightly in trading following the first positive headline Beirut has enjoyed for months, from about 73 cents on the dollar to 75 cents. But the price of Lebanon’s two-year debt dropped, pushing yields to a new high of 14.5 per cent, indicating that investors still saw high risks in the shorter term. Yields rise when prices fall.
Lebanon has the world’s third-largest debt-to-GDP ratio at more than 150 per cent, and a monetary system that relies on constant injections of outside capital. Next year, Beirut is projected to spend more than half its fiscal revenue on debt servicing, raising questions over the sustainability of its debt burden.
Doha’s decision to invest in Lebanese debt came after Qatari ruler Sheikh Tamim bin Hamad Al Thani met Lebanese president Michel Aoun on Sunday, reported Qatar’s state news agency, when he visited Beirut for the Arab League economics summit hosted by Lebanon.
Markets were spooked earlier this month by confusion over whether or not Beirut was planning a debt restructuring. Politicians scrambled to reassure investors that their money was safe.
Beirut has already received pledges of foreign support. International donors pledged $11bn of soft loans for Lebanese infrastructure development last spring, with the lending to be contingent on evidence that Beirut was tackling fiscal reforms to bring down its deficit.
But Beirut’s leaders have failed to form a government due to months of acrimonious political jockeying, meaning no projects can be signed off on and the loans remain inaccessible. The most recent political stumbling block has been blamed on Hizbollah.
The Saudi-UAE axis, locked in proxy battles with Iran, has become increasingly concerned about Hezbollah’s expanding role in domestic and regional politics, accusing the group of facilitating Iran’s interference across the Arab world.
This has taken a toll on Lebanon’s relations with Gulf countries. Riyadh and Abu Dhabi have discouraged their nationals from visiting Lebanon in recent years, curtailing foreign investment from the Gulf. The ban is expected to be lifted once a new government is formed in Beirut. In November 2017, Lebanon’s prime minister Saad Hariri was detained during a visit to Riyadh and temporarily resigned.
Qatar’s regional rivals, Saudi Arabia and the UAE, in 2017 led a trade and travel embargo on Doha, accusing it of supporting Islamist extremism. Doha, which denies the charges, has used its hydrocarbon riches to open new trade routes and continue preparations for its hosting of the Fifa World Cup in 2022.
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