DUBAI (Reuters) – Lebanon bond investors could see their holdings slashed by 75%, Goldman Sachs (NYSE:) said, should the newly formed government solve losses in the financial system, embark on credible reforms and unlock funding from the International Monetary Fund.

In March 2020, Lebanon declared default on its international debt. It was unable to pay a debt load that Goldman Sachs had estimated to be over 300% GDP.

Following a year-long political deadlock, Najib Mikati the Sunni Muslim businessman, formed a new government this month. This is after three quarters of the population are now poor, following the most severe depressions in recent history.

Goldman reported this week that the Mikati government’s Monday ratification is the first of a lengthy and narrow road to Lebanese recovery. It will be difficult and high-risk.

Based on various assumptions such as a strengthening Lebanese dollar to 8,000 USD in the medium term, from approximately 14,500 on the parallel market, as well negative real interest rates and specific levels of growth and adjustment to fiscal balance and public debt, the bank’s projections for debt recovery include a stronger Lebanese currency to 14,000 to the US Dollar in the short-term.

It stated that based on these assumptions and limitations, it was able to estimate a haircut of 75% from the nominal Eurobonds’ current value.

The government will have to solve financial losses. Goldman stated that the first task is to resolve the foreign exchange liabilities. He estimated them at $70billion, with $13billion in reserves.

The government would need to implement comprehensive reforms in order to correct the problems that led to Lebanon’s crisis.

Goldman explained that an IMF programme was necessary to help Lebanon. This is a prerequisite for talks with creditors, and ultimately a resolution of default.