BEIRUT: Moody’s Investors Service indicated that the failure of the Lebanese government to fund the Special Tribunal for Lebanon could lead to economic or financial sanctions from the international community. It added that any sanctions, particularly if they are aimed at the banking sector, would be credit-negative for Lebanon given that the country relies on its banks’ capacity to attract deposits and buy government debt, as reported by Lebanon This Week, the economic publication of the Byblos Bank Group.

The agency said the STL was established in March 2009 with the purpose of holding trials for the people accused of carrying out the attack on Feb. 14, 2005 that killed 23 people, including former Prime Minister Rafik Hariri.

The STL published its findings in June, charging four Hezbollah members and reviving tensions between communities within Lebanon.

It noted that the current Lebanese government has to manage competing pressures from its domestic political base, which rejects the STL’s role and findings, and concerns about possible international sanctions.

According to Moody’s, a decision to fund the STL could lead to a domestic political crisis, and potentially a fall of the current government.

It said the dispute over the STL already caused the resignation of the previous government in January 2011, which was followed by five months of negotiations over the composition of the Cabinet.

The country is required to transfer $32 million, or 49 percent of the STL’s annual budget to the United Nations. Failure to fund the STL could lead to economic or financial sanctions from the international community.

Moody’s considered that sanctions appear unlikely, but cautioned that potential consequences could be severe.

The stability of the Lebanese banking sector rests largely on the banks’ capacity to attract a stable inflow of customer deposits.

Customer deposits fund 83 percent of Lebanese banking system assets and are supported by remittances, which account for over 20 percent of Lebanon’s GDP.

Moody’s added that sanctions that reduce the inflow of remittances or deposits could pose a threat to the stability of the banking system and the sovereign’s finances.

Lebanese banks are the main lenders to the highly indebted Lebanese sovereign and their capacity to fund government debt depends on the stability of their depositor base.