BLOM Lebanon PMI: PMI increases to three-month high in December

Lebanese are exhausted from the escalation of adverse events taking place. Year 2021 was marked by further crises affecting the economic and health sector, amid bitter relations between the country’s political leaders. Furthermore, Central bank wisely stopped subsidizing imports of fuel and most medicine in August, but that must have helped add to the poverty rate. Moreover, throughout the year, gas stations witnessed long queues and the country’s main power company “Electricite du Liban” was unable to provide minimum levels of electricity, thus Lebanon was overwhelmed with darkness and many people had to rent costly private generators.

On 9th of December, BDL issued Intermediate Circular 601 that replaces Basic Decision number 13221 of Circular 151, issued on 21st of April 2021, with Intermediate Decision Number 13377, in relation to the “exceptional measures concerning cash withdrawals from foreign currency bank accounts”. The new Decision asks banks to honor customers’ withdrawals from their USD deposits at the exchange rate of 8,000 LBP instead of the 3,900 LBP that was set previously. It also limits withdrawals to 3,000 USD each month. The new Decision was effective immediately and has a duration that ends on 30/6/2022. This amendment was set to ease people’s liquidity constraints and bring the multiple exchange rates closer together so as to ultimately unify them per an IMF reform program.

Consumer Price Index (CPI), which gives an overview about the evolution of goods and services’ prices consumed by households, revealed that Lebanon’s monthly inflation rate jumped from 133.5% in November 2020 to register a record high of 201.07% in November 2021. In details, the cost of “Housing and utilities”, inclusive of water, electricity, gas and other fuels (grasping 28.4% of the CPI) added a yearly 80.69% by November 2021, where “Owner-occupied” rental costs increased by 2.44% year-on-year (YOY) while the average prices of “water, electricity, gas, and other fuels” soared by 297.35% YOY. As inflation continues to skyrocket, prices of “Food and non-alcoholic beverages” surged by 357.95% yearly. In turn, the average prices of “Transportation”, “Health” and “Restaurant and Hotels” all recorded hikes of an annual 579.90%, 374.27% and 342.23%, respectively, by November 2021.

On the positive side, according to the data from the Orders of Engineers in Beirut and Tripoli, the total construction permits witnessed a year-on-year (YOY) remarkable increase of 58.10% to reach 13,347 permits by October 2021. The construction activity witnessed a prominent increase across all governorates. Mount Lebanon, grasped 39.37% of the total permits, and accounted for 5,155. The South constituted 28.79% of the total permits. Second, Nabatieh held 19.89% of the total permits; whereas in Bekaa, 1,213 construction permits were issued while. In Beirut only 239 construction permits were issued by October 2021, lowest in the country, reflecting the need for a government plan to revive the economy and attract foreign investors.

Moreover, number of Real estate (RE) transactions went up by a yearly 32.14% to stand at 82,946 transactions by October 2021. In its turn, the value of total RE transactions stood at $11,947.31M by October 2021, compared to $11,299.66M in the same period last year, up by 5.73%. Number of RE transactions stood at 11,366 in the month of October 2021, compared to 7,655 transactions in October 2020. Regionally, Beirut grasped the lion’s share of the total value of RE transactions, equivalent of 26.59% and worth $372.69M, while Baabda and Metn followed, constituting 16.49% and 13.47% of the total, each worth $348.52M and $284.65M, respectively. However, the cars sector in Lebanon is still suffering due to the continuous devaluation of the national currency against the dollar followed by the severe drop in purchasing power and income of individuals. The sector signalled a dramatic drop of 28.1% in new cars registered in Lebanon during the first 11 months of 2021 in comparison with the same period of 2020 and by nearly 80.7% in comparison with the same period of 2019, as stated by the Association of Car Importers in Lebanon. This drop is leading to the “closing down of a number of companies and to the licensing of a large number of their employees and workers”.

The breakdown of the airport’s statistics revealed that total arrivals added 79.68% year-on-year (YOY) to hit 1,827,442 million by November 2021. By the same token, the number of departing passengers climbed by a yearly 69% to reach 1,972,459 over the same period. The activity at Rafic Hariri International Airport improved in the first 11 months of the year despite the rough economic situation over the summer period. Consequently, the number of Beirut’s International airport passengers went up by 70.91%, as it recorded 3.86 million (M) passengers in November 2021 compared to 2.26M passengers during the same period last year. We expect data to show a further increase in airport passengers during the month of December for the Christmas and New Year holidays.

According to Banque du Liban (BDL) balance sheet, the central bank’s total assets added 3.76% compared to last year, to reach $163.86B by mid December 2021. BDL’s foreign assets (grasping 11.04% of total assets) decreased by 27.29% y-o-y to stand at $18.08B by mid December 2021. Although large part of subsidies on essential products was detached, foreign assets are still diminishing as a result of Ogero and electricity expenses which are paid strictly in foreign currency, in addition to the imports funded through “Sayrafa” exchange rate platform. Currency in Circulation outside of BDL (18.44% of BDL’s total liabilities) increased by 53.25% jumping from $19.72B by mid December 2020 to $30.22B by mid December 2021. In fact, new amendment for circular 151 has been issued by BDL setting the exchange rate for dollar deposit withdrawals at 8,000 LBP. This new amendment could lead to higher Lebanese pound liquidity and in turn it would cause further depreciations in the exchange rate.

It is worth noting that data published by the Association of Lebanese Banks’ (ABL), show that total number of cleared checks in the Lebanese financial system slumped from 4,955,345 checks by October 2020 to 2,745,805 checks by October 2021. Moreover, the value of total cleared checks declined yearly by 31.72% to reach $30.82B by October 2021. Accordingly, the dollarization of cleared checks in terms of value went down from last year’s 63.87% to 51.09% by October 2021. In contrast, the dollarization rate of checks in terms of volume rose from last year’s 50.71% to 52.26% by October 2021.

Latest data by the Ministry of Finance indicated that Lebanon’s gross public debt hit $98.73B in August 2021, thereby recording an annual increase of 4.7%. The rise is mainly attributed to the annual increase in both local and foreign currency debt by 3.35% and 7.06%, respectively. Meanwhile, total debt denominated in foreign currency (namely in USD) reached $37.71B over the same period. Therefore, total foreign debt grasped a stake of 38.19% of the total public debt by August 2021.

Lebanon’s fiscal balance (cash basis) decreased by 108.40% from last year to register a first time surplus of $186.68M by June 2021. Fiscal revenues recorded a yearly increase by 40.59% to stand at $5,576.64M. Tax revenues (constituting 80.68% of total revenues) added an annual 38.05% to $4,602.33M by June 2021. Revenues from VAT (19.29% of total tax receipts) added 118.89% y-o-y to $1,235.48M. In details, the government revenues (including treasuries) added 29.56% on yearly basis to stand at $5,977.30M by June 2021. On the counterpart, total expenditures (including treasuries) retreated yearly by 15.30% to $5,790.63M by June 2021. It is very interesting to note that the primary balance which excludes debt service posted a surplus of $1,109.36M, compared to a deficit of $725.03M during the same period last year.

PMI increases to three months high during December, to record 46.7, yet still indicative of a deterioration in the health of Lebanon’s private sector economy. Overall, last month of the year witnessed further depreciation of the Lebanese currency, with output prices increasing at the fastest pace for five months, resulting in rising inflationary pressures. As such, prompt action is vital by the new government while going into 2022 to avoid the crisis from deepening.

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