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JP Morgan Proposes Restructuring Scenario for Lebanon's Sovereign Bonds

In this photo from August 20, 2018, a man counts Lebanese pounds at an exchange shop in Beirut, Lebanon. (AP)
In this photo from August 20, 2018, a man counts Lebanese pounds at an exchange shop in Beirut, Lebanon. (AP)
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JP Morgan Proposes Restructuring Scenario for Lebanon's Sovereign Bonds

In this photo from August 20, 2018, a man counts Lebanese pounds at an exchange shop in Beirut, Lebanon. (AP)
In this photo from August 20, 2018, a man counts Lebanese pounds at an exchange shop in Beirut, Lebanon. (AP)

Global financial services firm JPMorgan said the recent positive developments in Lebanon raise hopes for the normalization of the political dynamics in the country, but cautioned they remain insufficient without reforms.

The report, published shortly before the announcement of a new government in Lebanon, noted that the value of Eurobonds - dollar-denominated bonds issued by the state - have recently improved, to exceed the average price recorded in 2020.

It noted that this increase was influenced by positive political events after the parliament successfully elected former army commander Joseph Aoun as president, followed by the appointment of Judge Nawaf Salam as prime minister in January.

JP Morgan said the recent recovery in Lebanon’s $3.1 billion face value stock of Eurobonds has been strong, as Lebanon was the best performer of the EMBI Global Diversified Index last year due to the positive developments and the supportive global risk environment.

However, it expressed caution about future performance given the risks to political stability in the country and the hurdles that need to be overcome before restructuring negotiations can begin.

It also noted that the country's economic downturn, especially after Israel’s war on Hezbollah, will take some time to reach a state of stability in the medium term.

JP Morgan said the Eurobonds’ restructuring will require a comprehensive debt sustainability analysis, but it estimated that based on current levels, the market pricing is pointing towards a 70% haircut with a 10-year maturity extension.

The average price of Lebanese Eurobonds rose to 18 cents on the dollar Monday following the formation of Salam’s government on Saturday.

The report also said that Lebanon's economy is highly dollarized with dollar-denominated banknotes accounting for about 95% of the volume of cash in circulation and deposits outside banks.

It noted that following the reconstruction efforts, the Lebanese authorities should start rebuilding the economy with significant support from external partners, which in turn will depend on the ongoing developments and the eventual reforms plan.

Political stability would also shift the focus towards addressing the sovereign-banking crisis, it added.

JP Morgan stated that the authorities will need to develop reforms plan in conjunction with the International Monetary Fund (IMF) in order to pave the way for external financing and to get relief from creditors.

It considered that the authorities will prioritize restoring the financial sector’s stability, recapitalization and a depositor bail-in over the restructuring of the sovereign Eurobonds, given the respective relative size of liabilities.

It noted that the IMF's 2022 scenario suggests that debt sustainability could be achieved by calibrating the restructuring to deliver an 80% debt to GDP ratio by 2027, and gross financing needs averaging no more than 9% per year in the 2024–27 period.

Such targets would, however, need to be tightened to the extent that the government’s balance sheet is used to support the bank restructuring.

While determining the exact magnitude of the overall losses in the financial system requires a comprehensive bank-by-bank asset quality review and the completion of the debt restructuring, IMF said staff and the authorities estimate them at about $70 billion, suggesting that the Central Bank will end up with negative equity of some $60 billion.

JP Morgan noted that about 80% of commercial bank assets are deposited with the Central Bank of Lebanon.

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Leading Harvard Trade Economist Says Saudi Arabia Holds Key to Success in Fragmented Global Economy

Professor Pol Antràs speaks during a panel discussion at the AlUla Conference for Emerging Market Economies (Asharq Al-Awsat).
Professor Pol Antràs speaks during a panel discussion at the AlUla Conference for Emerging Market Economies (Asharq Al-Awsat).
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Leading Harvard Trade Economist Says Saudi Arabia Holds Key to Success in Fragmented Global Economy

Professor Pol Antràs speaks during a panel discussion at the AlUla Conference for Emerging Market Economies (Asharq Al-Awsat).
Professor Pol Antràs speaks during a panel discussion at the AlUla Conference for Emerging Market Economies (Asharq Al-Awsat).

Harvard University economics professor Pol Antràs said Saudi Arabia represents an exceptional model in the shifting global trade landscape, differing fundamentally from traditional emerging-market frameworks. He also stressed that globalization has not ended but has instead re-formed into what he describes as fragmented integration.

Speaking to Asharq Al-Awsat on the sidelines of the AlUla Conference for Emerging Market Economies, Antràs said Saudi Arabia’s Vision-driven structural reforms position the Kingdom to benefit from the ongoing phase of fragmented integration, adding that the country’s strategic focus on logistics transformation and artificial intelligence constitutes a key engine for sustainable growth that extends beyond the volatility of global crises.

Antràs, the Robert G. Ory Professor of Economics at Harvard University, is one of the leading contemporary theorists of international trade. His research, which reshaped understanding of global value chains, focuses on how firms organize cross-border production and how regulation and technological change influence global trade flows and corporate decision-making.

He said conventional classifications of economies often obscure important structural differences, noting that the term emerging markets groups together countries with widely divergent industrial bases. Economies that depend heavily on manufacturing exports rely critically on market access and trade integration and therefore face stronger competitive pressures from Chinese exports that are increasingly shifting toward alternative markets.

Saudi Arabia, by contrast, exports extensively while facing limited direct competition from China in its primary export commodity, a situation that creates a strategic opportunity. The current environment allows the Kingdom to obtain imports from China at lower cost and access a broader range of goods that previously flowed largely toward the United States market.

Addressing how emerging economies should respond to dumping pressures and rising competition, Antràs said countries should minimize protectionist tendencies and instead position themselves as committed participants in the multilateral trading system, allowing foreign producers to access domestic markets while encouraging domestic firms to expand internationally.

He noted that although Chinese dumping presents concerns for countries with manufacturing sectors that compete directly with Chinese production, the risk is lower for Saudi Arabia because it does not maintain a large manufacturing base that overlaps directly with Chinese exports. Lower-cost imports could benefit Saudi consumers, while targeted policy tools such as credit programs, subsidies, and support for firms seeking to redesign and upgrade business models represent more effective responses than broad protectionist measures.

Globalization has not ended

Antràs said globalization continues but through more complex structures, with trade agreements increasingly negotiated through diverse arrangements rather than relying primarily on multilateral negotiations. Trade deals will continue to be concluded, but they are likely to become more complex, with uncertainty remaining a defining feature of the global trading environment.

Interest rates and artificial intelligence

According to Antràs, high global interest rates, combined with the additional risk premiums faced by emerging markets, are constraining investment, particularly in sectors that require export financing, capital expenditure, and continuous quality upgrading.

However, he noted that elevated interest rates partly reflect expectations of stronger long-term growth driven by artificial intelligence and broader technological transformation.

He also said if those growth expectations materialize, productivity gains could enable small and medium-sized enterprises to forecast demand more accurately and identify previously untapped markets, partially offsetting the negative effects of higher borrowing costs.

Employment concerns and the role of government

The Harvard professor warned that labor markets face a dual challenge stemming from intensified Chinese export competition and accelerating job automation driven by artificial intelligence, developments that could lead to significant disruptions, particularly among younger workers. He said governments must adopt proactive strategies requiring substantial fiscal resources to mitigate near-term labor-market shocks.

According to Antràs, productivity growth remains the central condition for success: if new technologies deliver the anticipated productivity gains, governments will gain the fiscal space needed to compensate affected groups and retrain the workforce, achieving a balance between addressing short-term disruptions and investing in long-term strategic gains.

Business

Aljadaan: Emerging Markets Account for 70% of Global Growth

Al-Jadaan speaking to the attendees at the "AlUla Conference for Emerging Market Economies" (Asharq Al-Awsat
Al-Jadaan speaking to the attendees at the "AlUla Conference for Emerging Market Economies" (Asharq Al-Awsat
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Aljadaan: Emerging Markets Account for 70% of Global Growth

Al-Jadaan speaking to the attendees at the "AlUla Conference for Emerging Market Economies" (Asharq Al-Awsat
Al-Jadaan speaking to the attendees at the "AlUla Conference for Emerging Market Economies" (Asharq Al-Awsat

Saudi Minister of Finance Mohammed Aljadaan stressed Sunday that the world economy is going through a “profound transition,” saying emerging markets and developing economies now account for nearly 60 percent of the global Gross Domestic Product (GDP) in purchasing power terms and over 70 percent of global growth.

In his opening remarks at the AlUla Conference for Emerging Market Economies, organized by the Saudi Ministry of Finance and the IMF in AlUla, the minister said these economies have become an increasingly important driver of global growth with their share of global economy more than doubling since 2010.

“Today, the 10 emerging economies in the G20 alone account for more than half of the world growth. Yet, they face a more complex and fragmented environment, elevated debt levels, slower trade growth and increasing exposure to geopolitical shocks.”

“Unfortunately, more than half of low income countries are either in or at the risk of debt distress. At the same time global trade growth has slowed at around half of what it was pre the pandemic,” Aljadaan added.

The Finance Minister stressed that the Saudi experience over the past decade has reinforced three lessons that may be relevant to the discussions at the two-day conference, which brings together a select group of ministers and central bank governors, leaders of international organizations, leading investors and academics.

“First, macroeconomic stability is not the enemy of growth. It is actually the foundation,” he said.

“Structural reforms deliver results only when institutions deliver. So there is no point of reforming ... if the institutions are unable to deliver,” he stated.

Finally, he said that “international cooperation matters more, not less, in a fragmented world.”

Business

Georgieva from AlUla: Growth Still Lacks Pre-pandemic Levels

Kristalina Georgieva speaking to attendees at the second edition of the AlUla Conference for Emerging Market Economies (Asharq Al-Awsat)
Kristalina Georgieva speaking to attendees at the second edition of the AlUla Conference for Emerging Market Economies (Asharq Al-Awsat)
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Georgieva from AlUla: Growth Still Lacks Pre-pandemic Levels

Kristalina Georgieva speaking to attendees at the second edition of the AlUla Conference for Emerging Market Economies (Asharq Al-Awsat)
Kristalina Georgieva speaking to attendees at the second edition of the AlUla Conference for Emerging Market Economies (Asharq Al-Awsat)

International Monetary Fund (IMF) Managing Director Kristalina Georgieva said Sunday that world growth still lacks pre-pandemic levels, expressing concern as she expected more shocks amid high spending and rising debt levels in many countries.

Georgieva spoke at the AlUla Conference for Emerging Market Economies, organized by the Saudi Ministry of Finance and the IMF in AlUla.

The two-day conference brings together a select group of ministers and central bank governors, leaders of international organizations, leading investors and academics to deliberate on policies to global stability, prosperity, and multilateral collaboration.

Georgieva said that the conference was launched last year in recognition of the growing role of emerging market economies in a world of sweeping transformations.

“I came out of this gathering .... With a sense of hope for the pragmatic attitude and determination to pursue good policies and build strong institutions,” she said.

Georgieva stressed that “good policies pay off,” and said that growth rates across emerging economies reached four percent this year, exceeding by a large margin those of advanced economies that are around 1.5 percent.