BLOM Lebanon PMI Down to 46.3 in March

The BLOM Lebanon Purchasing Managers’ Index (PMI) dropped from 46.9 in February to 46.3 in March as output continued to contract in light of political uncertainty.

Balance of payments data by February hinted at a continued precariousness in Lebanon’s external position. According to the Central Bank of Lebanon, Lebanon’s Balance of Payments (BoP) witnessed a deficit of $1.93 billion by February 2019 as compared to the $165.2 million surplus recorded during the same period in 2018. In details, the Net Foreign Assets (NFA) of BDL and of commercial banks slipped by $786.2 million and $1.14 billion, respectively, by February 2019.

As for the Central Bank’s balance sheet, it posted a decline in assets due to a netting operation. The Central Bank’s (BDL’s) balance sheet posted an 11.15% year-to-date (y-t-d) decline in its total assets, which reached $124.92B in March 2019. BDL carried out a netting operation between its “Loans to the local financial sector” and “Financial Sector Deposits”.  According to BDL, this offsetting of loans with their corresponding deposits is in accordance with IFRS 7.

BDL has been conducting financial engineering schemes with Lebanese commercial banks according to which BDL provides loans with low interest rates at 2% in Lebanese pound to the banks and agreed with banks to deposit 125% of the amounts the former granted them at a 10.5% interest to be blocked over the next 10 years, in exchange for foreign currency deposits from the banks. BDL’s foreign assets (grasping 30.87% of total assets), fell by 2.79%, to stand at $38.56B in the first quarter of 2019.

Uncertainty around the operating environment is still prominent. However, any progress on the government’s efforts in terms of reforming the loss-making EDL and adjusting the fiscal position of the country can boost investor sentiment and allow Lebanon to tap into CEDRE funds.

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