(This October 24 story corrects first paragraph to show Moody’s referring to debt monetization plan)

LONDON (Reuters) – Confidence in the Lebanese government’s ability to service its debt could be further undermined through its debt monetization plan, Moody’s warned on Wednesday.

The move, which involves the central bank providing finance for the government, could compound pressures on the currency peg and Lebanon’s debt sustainability over the medium term, the ratings agency said.

Beset by national protests and a worsening financial crisis, Lebanon’s government has unveiled a set of measures aimed partly at appeasing demonstrators and convincing foreign donors it can slash next year’s budget deficit.

The mooted cancellation of the central bank’s local currency debt holdings would provide liquidity relief in the short term, it added.

Additional financial sector taxes would be credit negative for banks, further pressuring poor returns and their ability to absorb shocks, Moody’s also said.

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