Lebanese Leaders Reach Agreement on New Government: Political Sources According to Reuters

BEIRUT (Reuters) – Lebanese leaders have agreed to establish a new unity government, according to three political sources from various factions, thus concluding months of negotiations that have heightened worries about the nation’s crippling debt.

This development led to a jump in the price of Lebanon’s bonds, with a 2037 dollar issue rising by 4.3 cents, reaching its highest level since August.

Saad al-Hariri, the prime minister-designate backed by Western powers, now faces the significant challenge of implementing reforms necessary to tackle the country’s dire public finances and unlock billions in promised aid and loans to stimulate growth.

The new government will comprise most of Lebanon’s competing factions, who have been discussing the cabinet’s structure following the May 6 election, where allies of the Iran-backed Hezbollah group gained influence.

Announcement of the government was expected following Hariri’s meeting with President Michel Aoun at the presidential palace in Baabda. Reports indicated that Parliament Speaker Nabih Berri joined the discussions later.

A senior official confirmed that Ali Hassan Khalil will remain as finance minister, while a source involved in the government formation talks stated Hezbollah has appointed Shi’ite doctor Jamil Jabak, who is not affiliated with the group, as health minister. This appointment indicates a shift for Hezbollah, as the health ministry controls the fourth-largest budget in the country.

The United States classifies Hezbollah as a terrorist organization and has imposed new sanctions against the group as part of its broader strategy against Iran.

Following the election, Hariri’s previous government, established in late 2016, has been functioning in a caretaker capacity. Despite losing over a third of his legislators, Hariri retains his status as the leading Sunni Muslim figure and resumes the premiership, a position designated for his community under Lebanon’s sectarian governance.

However, the election resulted in a parliament more favorable to Hezbollah, bolstered by allies who support its large arsenal. These factions collectively secured more than 70 of the 128 parliamentary seats.

Although Lebanon’s economy and financial structure have displayed resilience during earlier political stalemates, investor concerns are increasingly reflected in bond prices and the costs associated with debt default insurance.

Jason Tuvey, a senior economist for emerging markets in London, noted that the new government must demonstrate its capability to enact rigorous reforms to alleviate investor anxieties following their initial positive reaction.

"It took them nine months to form a government, and it’s uncertain how long it will take to agree on the severe fiscal consolidation necessary to stabilize the debt situation," he explained.

Earlier on Thursday, Hariri emphasized that the new government would need to make "difficult decisions" aimed at reducing expenditures.