October 3, 2019 / 9:05 AM / 2 months ago

UPDATE 2-Lebanon central bank ready to repay state's maturing dollar debt - Salameh

(Adds quotes, comments on rising dollar demand, context, details)

BEIRUT, Oct 3 (Reuters) - Lebanon’s central bank is ready to repay the state’s maturing dollar-denominated debt to protect the country’s financial credibility, Governor Riad Salameh said on Thursday.

One of the world’s most heavily indebted states, with a public debt burden of 150% of GDP, Lebanon has a $1.5 billion Eurobond maturing in November.

The government has declared “an economic emergency” and vowed to enact long-delayed reforms to rein in spending.

“The maturities that the Lebanese state has, we have also prepared for them, to pay for them in dollars,” Salameh told a conference on Thursday. “I believe this matter is essential, and Banque du Liban is carrying this out for monetary reasons (and) for the protection of Lebanon’s credibility.”

Finance Minister Ali Hassan Khalil told Reuters this week that Lebanon had begun preparing to issue a Eurobond of around $2 billion in October to meet state financing needs.

Salameh also said there had been a rise in demand for U.S. dollars in Lebanon since June, which he attributed to an increase in imports, although he questioned whether these were intended for use locally or outside Lebanon.

Lebanon’s pound has been pegged at 1,507.5 pounds to the dollar for more than 20 years but the price has recently risen above that level on the unofficial, or parallel, market, reflecting an economic crisis stemming from low growth and slowing capital inflows.

The central bank took steps on Tuesday to provide banks with U.S. dollars to back imports of fuel, wheat and medicine. Some importers have threatened to strike because they can not secure dollars at the official rate from banks and are being forced to pay more on the parallel market.

Salameh said there had always been some difference between the official peg and money exchangers’ rates and that the central bank would preserve the stability of the official rate.

More demand for cash dollars at money exchange offices since June pushed the cost of dollars 1% to 3% above the official rate at the banks, he said.

“This matter goes back to an increase in imports of some materials, and we do not know if all this importing is for local consumption or not,” he said, without elaborating.

The only country with which Lebanon has an open land border is Syria, which has suffered fuel shortages due to Western sanctions on its government.

Salameh said commercial banks must make sure that lines of credit fund imports only for local consumption.

“This is essential not only for the finances of Lebanon, but also for its reputation and keeping it within the global finance system.”

Salameh also expressed hope that Lebanon’s government would further narrow its budget deficit. “We hope the government implements a budget for 2020 that gives a positive signal to the markets by reducing the deficit,” Salameh added. (Reporting by Ellen Francis, Tom Perry and Laila Bassam; Editing by Hugh Lawson and Kirsten Donovan)

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