MIDDLE EAST

Lebanon forms government, ending months of deadlock

Lebanese political factions have agreed on the formation of a new government, breaking a nine-month deadlock that only deepened the country's economic woes.

Rival political groups have been locked in disagreement over the make-up of a new government since May, after the country's first parliamentary elections in nine years.

The breakthrough comes after rival factions worked out a compromise allowing representation of Sunni lawmakers backed by the powerful Shiite group Hezbollah.

Celebrations broke out after the announcement, including huge fireworks that lit up the Beirut sky.

The news boosted Lebanon's bonds, with a 2037 dollar issue jumping in price by 4.3 cents to its highest since August.

The new government will be headed by Saad Hariri, the Sunni politician who headed the outgoing government since 2016. The post always goes to a Sunni politician under the country's political system.

The government also sees an increase in the number of ministries affiliated with the powerful Shiite Hezbollah group, which is under tightening sanctions from the United States that labels the group a terrorist organization. The group made significant gains in last year's Parliament elections while Hariri's block lost a third of its seats.

The group now holds two ministries and a ministry of state, including for the first time the Ministry of Health, which has one of the country's largest budgets. The Finance Ministry remains in the hands of a Hezbollah ally, Ali Hassan Khalil.

For the first time, the Lebanese government includes four women ministers, doubling their representation, including the powerful Ministry of Interior in charge of internal security. Gebran Bassil, the son-in-law of the Lebanese President, remains foreign minister.

Hariri called the new government "a reflection of Lebanon's image in 2019."

The main pressure appeared to be Lebanon's deepening economic woes and Hariri told reporters the economy will be priority.

"There isn't any more time to waste," he said.

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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