Standard & Poor’s (S&P) has raised Lebanon’s long-term local currency credit rating to CCC from CC, maintaining a “stable” outlook. However, the agency left the country’s foreign currency rating at Selective Default (SD), underscoring Beirut’s ongoing failure to honor certain obligations.
The upgrade reflects what S&P described as Lebanon’s improved capacity to service domestic commercial debt, supported by fiscal surpluses over the past two years and initial progress on reforms tied to a prospective IMF program. The “selective default” designation refers to a situation where an entity defaults on specific commitments while continuing to meet others.
Lebanon remains among the world’s weakest credit risks. Fitch downgraded the country to Restricted Default (RD) in mid-2024 for both local and foreign currencies before withdrawing its ratings altogether, citing lack of essential financial data. Moody’s still places Lebanon at C, its lowest rating.
Lebanon’s local-currency debt has shrunk dramatically, falling to around 2 percent of GDP - less than $1 billion - by the end of 2024, down from roughly 100 percent before the financial collapse in 2020. This was largely the result of a 98 percent collapse in the Lebanese pound’s value between 2019 and 2024.
Despite the turmoil, the government has maintained payments on local commercial obligations. It resumed interest payments to the central bank in 2024 after a three-year halt and has pledged to start repaying arrears this year.
The government formed in early 2025 under President Joseph Aoun and Prime Minister Nawaf Salam has pushed through several reforms, including a revised banking secrecy law and a bank restructuring bill. However, the crucial “financial gap” law - needed to apportion past losses and protect depositors - remains stalled.
The IMF, following a recent mission to Beirut, stressed that passing this law and approving the 2026 budget are essential. The fund has urged Lebanon to adopt a revenue-boosting and spending-rationalization strategy before further support can be unlocked.
S&P cautioned that major debt restructuring is unlikely before the May 2026 parliamentary elections, five years after Lebanon defaulted on its Eurobonds. The ongoing conflict between Israel and Hezbollah, despite a November 2024 ceasefire, continues to darken economic prospects.
Lebanon’s economy contracted by 6.5 percent in 2024, following smaller declines in 2022 and 2023. In dollar terms, GDP has halved from $55 billion in 2018 to $28 billion last year. S&P projects modest average growth of 2.3 percent in 2025–2026.
Since February 2024, the pound has stabilized around 89,500 to the dollar. Government net debt is expected to fall to 113 percent of GDP by end-2025, down from about 240 percent in 2022, thanks to fiscal gains, currency stability, and inflation-driven nominal growth.
