The contraction in the private sector’s economy has accelerated in September. In fact, as the summer season has come to an end, Lebanon has witnessed many events, starting with the visit from the international Monetary Fund (IMF) to Beirut from September 19 to 21 to discuss the delays related to the implementation of prior actions agreed under the Staff level agreement. The visit was followed by the Lebanese government approving 2022 budget and by the implementation of a new exchange rate of 15,000 Lebanese pounds to one USD for customs. Indeed, a pre-condition for the IMF agreement was to unify the multiple exchange rates that have existed since fall 2019. Therefore, Lebanon will start adopting the new official exchange rate of 15,000 pounds per dollar gradually, with initial exceptions to include banks’ balance sheets and housing loan repayments to which the rate of 1507.5 will still apply.
Furthermore, on September 27, the parliament was called to elect a new President, however the session was postponed as there was no political consensus on a candidate. Therefore, Lebanon is likely heading towards a presidential vacuum. As a result, without a functioning head of state amid political paralysis, Lebanon’s outlook remains uncertain.
The tourism sector shows strong signs of recovery two years after being severely affected by Covid-19 pandemic and social unrest. However, despite the strong recovery, number of arrivals and departures at Rafic Hariri International Airport remain lower than pre-pandemic levels in 2019. In fact, the activity at Rafic Hariri International Airport improved remarkably in the first eight month of 2022, as the number of Beirut’s International airport passengers added 58.23% and recorded 4,184,221 passengers by August 2022 compared to 2,644,321 passengers during the same period last year. Total arrivals jumped by 60.91% year-on-year (YOY) to stand at 2,083,301 by August 2022, while number of departing passengers climbed by a yearly 60.11% to reach 2,077,509 over the same period. Nevertheless, transit passengers decreased from 52,073 by August 2021 to 23,411 transit passengers by August 2022. Furthermore, the data from the Ministry of Tourism showed that the number of incoming visitors witnessed an annual increase of 95.75% reaching 570,738 visitors by June 2022, compared to only 291,570 by June 2021, and 199,722 in the first half of 2020. Nevertheless, we expect them to be higher for September 2022 as they won’t cover the summer season.
Lebanon is still facing historical high inflation rates driven by high volatility in prices due to worldwide elevated energy prices as well as the devaluation of the national currency. As such, Lebanon’s monthly inflation rate jumped from 137.75% in August 2021 to register higher levels of 161.89% in August 2022. In details, the cost of “Housing and utilities”, inclusive of water, electricity, gas and other fuels (grasping 28.5% of the CPI) added a yearly 99.89% by August 2022. Also, “Owner-occupied” rental costs increased by 6.01% year-on-year (YOY) and the average prices of “water, electricity, gas, and other fuels” followed a significant increase by 394.27% YOY as subsidies were removed by the Central Bank and prices went up sharply on the global market due to the war in Ukraine.
Real Estate transactions witnessed an annual decrease of 16% to reach 48,733 transactions by August 2022. In the same token, the value of total RE transactions stood at $7.64B by August 2022, which is 10.95% lower than $8.58B in the same period last year. In fact, the Real Estate market has been broadly perceived as the safest investment for the Lebanese since the eruption of the economic and financial crisis. Thus far, the demand for owning a real estate in Lebanon remains high but at a slower pace of expansion compared to last year as most vendors have gradually started to request full payments to be in fresh dollars. Nevertheless, when Lebanon implements the new official exchange rate of 15,000 Lebanese pounds to one USD, real estate registration costs will increase thus threatening demand even more.
In terms of the balance sheet of Banque du Liban (BDL), the central bank’s total assets added 11.91% compared to last year, to reach $178.32B by the end of September 2022. The increase was mainly due to the 41.96% year-on-year (YOY) rise in other assets, grasping 45.85% of BDL’s total assets and reaching $81.75B by end of September 2022. Nevertheless, the gold account, representing 8.65% of BDL’s total assets, recorded a drop of 3.41% YOY to reach $15.42B by the end of September 2022. Meanwhile, BDL’s foreign assets, representing 8.36% of total assets, recorded a decrease of 20.72% YOY and 16.43% YTD to stand at $14.9B by the end of September. Nevertheless, foreign assets include $5B in Lebanese Eurobonds, therefore BDL’s Foreign Assets excluding the Eurobonds dropped below the $10B. On a different note, total volume of dollars injected into the market through Sayrafa for the month of September reached $1.04B whereas the foreign assets of BDL increased by $153.26M for the same period. Accordingly, this indicates that BDL was able to amass close to $1.157B through purchases from the FX market (Sayrafa dollars and remittances) and through its acquisition of international aid money.
The data published by the association of Lebanese Banks’ (ABL) showed that the total number of cleared checks in the Lebanese financial system slumped from 2,350,757 checks from August 2021 to 1,225,373 checks by August 2022. Consequently, the value of total cleared checks decreased yearly by 13.47% to reach $22.60B by August 2022. In more details, the value of checks in LBP increased remarkably from $12.34B in August 2021 to reach $15.16B by August 2022, while value of checks in foreign currencies decreased significantly by 46.05% year on year (YOY) to reach $7.43B by August 2022. Accordingly, the dollarization rate of cleared checks in terms of value declined from 52.76% in August 2021 to 32.90% by August 2022. In the same token, the dollarization rate of checks in terms of volume fell by August 2022, to reach 47.24% instead of 53.28% by August 2021. Arguably, checks are infrequently accepted as a mode of payment as the economy is heading towards a full cash-dollarization.
Moreover, data released by the Ministry of Finance (MoF) recently indicated that Lebanon’s gross public debt hit $101.08B in April 2022, thereby recording an annual increase of 3.4%. The rise is mainly attributed to the annual increase in both local and foreign currency debt by 0.97% and 7.37%, respectively. In fact, domestic debt constituted 60.84% of the total public debt and reached $61.49B calculated on the official rate of 1507.5, while foreign debt, representing 39.16% of the total public debt, amounted to $39.58B.
It is worth noting that BOP recorded a deficit of $3.1B by August 2022, compared to a deficit of $2.37B over the same period last year. Accordingly, Net foreign Assets (NFAs) of BDL fell by $3.48B, as BDL has continued to make some intervention on Fx market through the “Sayrafa” rate while the NFAs of commercial banks increased by $382M by August 2022.
As for Lebanon’s consolidated commercial banks’ balance sheet, total assets decreased by 3.54% YTD and 6.4% YOY to stand at $168.75B by August 2022. In more details, deposits in foreign currencies (75.45% of resident customers’ deposits) decreased by 4.74% YTD to reach $97.15B by August 2022, while deposits in LBP (24.55% of resident customers’ deposits) increased by 2.32% YTD to stand at $26.58B by August 2022.
Amid these developments, BLOM Lebanon PMI registered alarming signs of contraction for the month of September with an index of 48.8 below the 50.0 threshold. Therefore, the index fell suddenly at the end of the summer season after reaching its highest level of 50.1 in August. In fact, in September, the business activity further deteriorated, backlogs of work decreased followed by a reduction in employment and new order intakes. In comparison with the US, Lebanon’s PMI shockingly recorded higher mark than the 44.6 index in September and 47.7 index in August. Furthermore, Lebanon’s PMI recorded lower marks than Eurozone and Great Britain, with respective indexes of 48.9 and 49.6. Nevertheless, after years of negotiations, an agreement to demarcate the marine borders seems closer than ever as a new preliminary proposal was set in order to pave the way for offshore energy exploration. Furthermore, the countdown to presidential elections has begun and the Lebanese parliament seems in motion towards completing the conditions set by the IMF. Therefore, amid the uncertainty of economic and political outlook, the business activity in Lebanon is set to decline in the upcoming short term period, however as Lebanon seems to be heading towards a recovery path, its economy will hopefully reboot.
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