BLOM Lebanon PMI rises to seven-month high in January

Month of January was relatively flourishing for Lebanon backed by a remarkable appreciation for the Lebanese currency amid Central Bank’s dollars injection through Sayrafa platform and the settling of the Government knot by holding a meeting at last to discuss State Budget days before the start of negotiations with the IMF.  Regionally, Kuwait handed Lebanese officials a list of suggestions for confidence-building measures with Gulf States in order to restore diplomatic relations between the two sides. However, this came at a time when ex-PM Hariri declared his withdrawal from the next elections making his move a game changer for the coming period. On a different note, Lebanon signed a new agreement with Jordan and Syria to be supplied by electricity under a U.S. backed regional plan to ease power shortages. Nevertheless, the World Bank asked for a comprehensive reform plan of the electricity sector in order to determine the exact amount of financing needed.

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 soared from 145.8% by end of 2020 to a high of 224.39% by the end of 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 103.08% by December 2021, where “Owner-occupied” rental costs increased by 2.81% year-on-year (YOY) while the average prices of “water, electricity, gas, and other fuels” soared by 425.35% YOY. As inflation continues to skyrocket, prices of “Food and non-alcoholic beverages” surged by 438.65% yearly. In turn, the average prices of “Transportation”, “Health” and “Restaurant and Hotels” all recorded hikes of an annual 522.39%, 404.94% and 414.71%, respectively, by December 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 36.10% to stand at 93,654 transactions by November 2021. In its turn, the value of total RE transactions stood at $13,372.36M by November 2021, compared to $12,268.70M in the same period last year, up by 9%. Number of RE transactions stood at 10,708 in the month of November 2021, compared to 6,038 transactions in November 2020. Regionally, Beirut grasped the lion’s share of the total value of RE transactions, equivalent of 19.48% and worth $277.51M, while Kesserwan and Metn followed, constituting 18.08% and 16.02% of the total, each worth $256.866M and $228.278M, respectively. Howeverthe 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 signaled a dramatic drop of 23.57% in new cars registered in Lebanon during the year of 2021 in comparison with last year and by nearly 88% in comparison with the same period of 2015, 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 76.64% year-on-year (YOY) to hit 2.07 million by end of 2021. By the same token, the number of departing passengers climbed by a yearly 69.76% to reach 2.18 million over the same period. Overall activity at Rafic Hariri International Airport improved in 2021 despite the rough economic situation over the year. Consequently, the number of Beirut’s International airport passengers went up by 69.84%, as it recorded 4.32 million (M) passengers by end of 2021 compared to only 2.54M passengers during last year.

According to Banque du Liban (BDL) balance sheet, the central bank’s total assets added 10.31% compared to last year, to reach $164B by mid-January 2022. BDL’s foreign assets (grasping 10.80% of total assets) decreased by 25.36% y-o-y to stand at $17.71B by mid-January 2022. Although large part of subsidies on essential products was detached, foreign assets are still diminishing at higher speed as a result of amendment of BDL’s circular 161 out of which banks are providing depositors with dollars through “Sayrafa” exchange rate platform. Currency in Circulation outside of BDL (18.64% of BDL’s total liabilities) increased by 42.33% reaching $30.56B by mid-January 2022. In fact, further increase in currency in circulation might be seen as the State budget for 2022 include one-time raise in remunerations to public sector employees, which probably would force BDL to print more money.

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 5,382,841 checks by November 2020 to 2,948,730 checks by November 2021. Moreover, the value of total cleared checks declined yearly by 31.5% to reach $33.60B by November 2021. Accordingly, the dollarization of cleared checks in terms of value went down from last year’s 42% to 32.96% by November 2021. In contrast, the dollarization rate of checks in terms of volume rose from last year’s 51.01% to 51.96% by November 2021.

Latest data by the Ministry of Finance indicated that Lebanon’s gross public debt hit $99.21B in September 2021, thereby recording an annual increase of 4.6%. The rise is mainly attributed to the annual increase in both local and foreign currency debt by 3.21% and 7.05%, respectively. Meanwhile, total debt denominated in foreign currency (namely in USD) reached $37.91B over the same period. Therefore, total foreign debt grasped a stake of 38.21% of the total public debt by September 2021. Interesting to note that measured at the market exchange rate of around 22,000 LBP/USD, local currency debt would amount to $2.78B, thus making total debt equal to only $40.69B, or about 187% of GDP and one of the highest worldwide.

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.

On a different note, it is important to mention that a draft for State budget for 2022 has been discussed since late last month. Preliminary numbers show fiscal deficit of 20.8% in term of expenditures. Lebanese officials seem trying to increase the revenues of the State in order to minimize the gap so as to be accepted by the IMF, as it is an essential step in the discussions. However, several obstacles remain other than a workable budget; foremost are the delays to crucial audits, need for monetary and fiscal reforms, and a restructuring of the banking system in Lebanon.

Amid these developments, PMI increases to seven-months high during January, to record 47.1, up from 46.7 previously. Crucially however, the PMI still below 50.00 and highlights the decline in the health of Lebanon’s private sector economy. Overall, the start of the year showed good intentions on the part of the Government coupled with noteworthy improvement in the Lebanese pound due to BDL’s intervention. However, private sector remains cautious about the political environment and still witnessing pressures on their business. Lastly, and more importantly, it is vital to see in the coming period a rescue and reform program that aim at restoring confidence and establishing financial and economic stability in the country as well as reaching a future deal on the foreign debt with creditors.

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