Protests Drive Fastest Output Contraction in Series’ History: BLOM Lebanon PMI at 37 in November 2019

The first full materialization of the civic protest’s economic repercussions emerged in November 2019, as economic growth is estimated at -0.5% year-to-date. While October’s PMI stood at 48.3, measured before the onset of civic protests by the 17th of the month, the November 2019 PMI fell to record-lows of 37 points, with growth going into negative territory. PMI panel members and corporate survey participants blamed the partial blocking of roads, disruption of supply chains and the growing political and economic uncertainty for the larger burden of input and output costs imposed on Lebanese private sector firms.

Moreover, two credit agencies downgraded Lebanon in November. Moody’s downgraded the Government of Lebanon’s issuer ratings to Caa2 from Caa1 on Nov. 04th, noting that the ratings remain on review for further downgrade by Feb. 2020. In turn, S&P lowered its long-term credit ratings on Audi Bank, BLOM Bank, and Bank Med from “B-” to “CCC” on November 15th. It also lowered its short-term issuer credit ratings on Bank Audi and Bank Med from “B” to “C”. S&P’s Lebanon ratings are also on-watch, for further lowering or affirming by Feb 2020 depending on investor confidence developments.

On the macroeconomic front, the protests delayed the publishing of some key statistics, but the latest parameters already reflect the deepening economic recession:

Capital controls imposed by banks nurtured a parallel market, as inflation is expected to rise. The capital controls nurtured a parallel market for foreign currency, as the average inflation rate stood at 2.45% year-on-year (YOY) by October 2019, compared to 6.31% by October last year. In fact, the monthly inflation rates since January 2019 had eased compared to last year’s figures, but average inflation is expected to rise by end 2019 and early 2020 especially if capital controls remain in place.

The fiscal deficit narrowed by August 2019, but public debt remains on the rise. The fiscal deficit of Lebanon (on cash basis) narrowed from $3.38B in the first 8 months of 2018 to $2.95B by August 2019. In details, government spending declined by an annual 4.81% while public revenues retreated by a yearly 1.13%. As such, total revenues and expenditures (including treasuries) stood at $7.7B and $10.7B, respectively. Meanwhile, the primary balance which excludes debt service, posted a surplus of $368.9M over the same period, compared to a $74.2M in surplus by August 2018. On the counterpart, gross public debt added a yearly 3.1% to touch $86.29B by August 2019. In fact, the share of domestic debt from gross debt grew to 62.3%, up from 57.75% by August 2018 while foreign currency debt grasped the remaining share of 37.4%.

It is worthy to note that BDL settled $1.5B Eurobond end-November. All debt-servicing payments made by the central bank in foreign currencies totaled around $1.9B, including $1.5B Lebanese Eurobonds maturing on November 28th. In turn, the November balance sheet of the central bank revealed foreign assets dropped by 3.95% since December 2018 to $38.1B by November 2019. Meanwhile, public sector deposits at BDL fell by 18.53%YTD to $4.1B over the same period.

In turn, the consolidated balance sheet of Commercial banks revealed deposit conversions to USD and international transfers. Resident customers’ deposits (50.42% of banks’ liabilities) decreased by 2.40% year-to-date (YTD) to $132.20B in Q3 2019, with deposits in LBP declining by 9.88% y-t-d to $41.88B while deposits in foreign currencies rose by 1.51%YTD to $90.32B. In fact, BDL’s statistics show that the national uncertainty since the onset of protests prompted the conversion of a portion of LBP deposits into USD, while the remaining LBP deposits were withdrawn out of the banking system.

Lebanon’s Balance of payments (BOP) deficit also expanded by Sept. 2019. The BOP recorded a deficit of $4.5B in the first 9 months of the year, compared to a deficit of $1.3B during the same period last year.

The business paralysis triggered by the protests and uncertainty in Lebanon was also apparent in key components of the real sector. For instance, “The number of new cars registered during the month of October 2019 has dramatically dropped by 62% in comparison with the month of October 2018”, according to the statement of the Association of Lebanese Car Importers (AIA). In fact, 1,049 total new cars were registered in October 2019, down from 2,744 cars in October 2018. In details, the number of passenger cars fell by 61.7% year-on-year (YOY) to 960 cars, while that of commercial cars contracted by 62.1% YOY to 89 cars by end-October.

In their turn, citizens preferred the use of cash over checks. According to the Association of Banks, the total value of cleared checks decreased by 14.6%YOY in Q3 2019, which illustrates lower business spending and people preferring alternate payment systems. In fact, the number of checks cleared by BDL amounted to 7.79M worth $42.4B in Q3 2019, compared to a total of 8.86M checks valued at $49.65B registered in the same period last year.

For the full report, kindly follow the links: 

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