Beirut (MEMO) – Lebanese leaders reached a deal on Thursday to set up a new unity government, three political sources from different factions said, ending months of wrangling that has added to concerns for the heavily indebted state, says Reuters.
The news boosted Lebanon’s bonds, with a 2037 dollar issue jumping in price by 4.3 cents to its highest since August.
The Western-backed prime minister-designate Saad al-Hariri now faces a big challenge in delivering reforms needed to address the dire public finances and unlock billions of dollars in pledged aid and loans to boost low growth.
The new government will include most of Lebanon’s rival factions, who have been negotiating over the make-up of the cabinet since a May 6 election in which allies of the Iran-backed Hezbollah group gained ground.
The government will be announced on Thursday, the sources said, as Hariri met President Michel Aoun at the presidential palace in Baabda. Media reports said he was later joined by Parliament Speaker Nabih Berri.
A senior official said Ali Hassan Khalil will stay on as finance minister, and a source familiar with the government formation talks said Hezbollah had chosen Shi’ite doctor Jamil Jabak, who is not a member of the group, as health minister.
By picking the health minister, the heavily armed Hezbollah will be moving beyond the more marginal role it has played in past governments: the ministry has the fourth-biggest budget in the state apparatus, the outgoing minister has said.
The United States regards Hezbollah as a terrorist organization and has put new sanctions on the group as part of a campaign against Iran.
Since the election, Hariri’s last government, appointed in late 2016, has continued in a caretaker capacity.
Hariri lost more than a third of his lawmakers in the election but kept his status as the leading Sunni Muslim and so returns as premier, a position reserved for his sect under Lebanon’s sectarian system of rule.
But the election produced a parliament tilted in favor of Hezbollah thanks to gains by groups and individuals that support its possession of a major arsenal. Together, they won more than 70 of the 128 seats.
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While Lebanon’s economy and financial system have shown resilience during previous periods of political paralysis, investor concerns have been reflected of late in bond prices and the costs of insuring against debt default.
Jason Tuvey, senior emerging markets economist at Capital Markets in London, said the new government would need to show it was able to implement tough reforms in order to reassure financial market investors after their positive early response.
“It’s taken them nine months to put together a government, let alone how long it will take to agree on the very harsh fiscal consolidation that would be needed to put the debt position on a firmer footing,” he said.
Hariri, speaking earlier on Thursday, said the new government would be forced to “take difficult decisions” to reduce spending.
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