Lebanon’s new government appears to be warming to the idea of going to the IMF, which would reduce the risk of a disorderly debt default that causes severe strains in the local banking sector. But even if the authorities go to the Fund, any deal is still likely to involve (an orderly) debt restructuring and a devaluation – we think the currency could fall by 50% against the dollar. And in the meantime, the economy is likely to fall into an even deeper recession.
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