The private sector in Lebanon revealed further signs of contraction during the month of November due to complete inaction, and lack of effective policy actions from our Country’s Leaders. The private sector was severely jeopardized as the country faces a prolonged Presidential vacuum. In fact, since the end of the term of Michel Aoun’s presidency on October 31, the country has failed to elect a new head of State for the eighth consecutive time. Unfortunately, as Lebanon faces a devastating economic crisis, lawmakers seem unwilling to take action or agree on the next president. As a result, citizens fear that reforms needed to secure a bailout from the International Monetary Fund (IMF) will not be implemented.
Furthermore, the Central Bank governor Riad Salamé declared that the new official exchange rate of LBP 15,000 per USD will go into effect on February 1, 2023 as part of a measure to unify the multiple exchange rates on the black market. Similarly, the Ministry of Finance will adopt a new exchange rate of LBP 15,000 per dollar in December 2022, instead of LBP 1507.5 per USD for customs tariffs. Therefore, a new wave of hyperinflation will hit the country very soon, thus poverty rate will plunge further, bearing in mind that the share of the Lebanese population under the national poverty.
Despite political deadlock, the tourism sector in Lebanon has recovered two years after being severely affected by shutdowns, travel restrictions and the social unrest erupted from the Covid-19 pandemic. In fact, according to the data from the Ministry of Tourism, its activity grew by 70% YOY reaching 1,120,927 visitors by September 2022, compared to only 659,030 by September 2021. According to the data from the Ministry of Tourism, visitors are mainly from top 3 destinations: Europe, Arab countries and Amercia. In fact, in September 2022, Europeans grasped the lion’s share or 39.47% of total tourists, followed by Arab countries (27% of total tourists) and America (21.64% of total tourists).
Furthermore, during the month of October 2022, the activity at Rafic Hariri International Airport further improved since the number of airport passengers added 52.01% YOY and recorded 5,354,376 passengers. In more details, total arrivals jumped by 56.05% year-on-year (YOY) to stand at 2,607,315 by October 2022, while number of departing passengers climbed by a yearly 52.03% to reach 2,717,832 over the same period. Nevertheless, transit passengers decreased from 63,987 by October 2021 to 29,229 transit passengers by October 2022. Although, number of arrivals and departures at the Airport remain lower than pre-pandemic levels, we expect them to be higher in the upcoming period as many visitors and expatriates are planning to visit Lebanon in the holiday 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. Surprisingly, Lebanon’s monthly inflation rate eased from a 173.57% in October 2021 to register softer levels of 158.46% in October 2022. 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 74.4% by October 2022. Also, “Owner-occupied” rental costs increased by 6.69% year-on-year (YOY) and the prices of “water, electricity, gas, and other fuels” followed a significant increase by 254.05% YOY as subsidies were removed by the Central Bank and prices went up sharply on the global market due to the war in Ukraine. Nevertheless, prices are expected to surge further in the coming period as the Ministry of Finance will adopt a new exchange rate of LBP 15,000 per USD instead of LBP 1507.5 per USD starting December 2022.
Real Estate transactions witnessed an annual decrease of 18.61% to reach 67,506 transactions by October 2022 compared to 82,946 transactions same period last year. In the same token, the value of total RE transactions stood at $11.32B by October 2022, which is 5.28% lower than $11.95B in the same period last year. On a monthly basis, the number of RE transactions stood at 11,006 in the month of October 2022, compared to 7,767 transactions in the previous month of September 2022, and to 11,366 transactions in October 2021. In details, Baabda region holds the biggest share of real estate transactions at 2,606, or 23.68% of total RE transactions, in the month of October 2022, followed by the South at 1919 transactions or 17.44% of total RE transactions. The Real Estate market has been broadly perceived as the safest investment for the Lebanese since the eruption of the economic and financial crisis. The demand for owning a real estate in Lebanon remained high compared to years before the crisis but with a slower pace of expansion compared to last year. This could be attributed to the fact that Real Estate owners are requesting full payments to be in fresh while buyers are cautious towards their investments due to the uncertainty in the coming period. The prospects for the coming year might not be that good either, given that property taxes would be valued at exchange rates notably higher than the official rate of 1507 LBP per USD.
The latest statistics on activity at the Port of Beirut show an annual decrease of 17.69% in the revenues of the Port of Beirut (PoB) to $6.40M by October 2021, compared to last year’s $7.54M. We note that no later data on revenue are available as per Port of Beirut statistics. Overall, total container activity including transshipment (TEU+TS) increased by a yearly 14.19% to stand at 593,834 twenty-foot equivalent unit (TEU); container activity (TEU) added 17.37% on a yearly basis to 476,030 TEU by October 2022, similarly transshipment activity (TS) added 5.96% YOY to 120,727 TEU by the same period. On a monthly basis, total container activity added 51.17% to stand at 64,008 twenty-foot equivalent unit (TEU) while container activity (TEU) added 26.9% for the month of October 2022 compared to same month last year to reach 46,140 TEU. Meanwhile, transshipment activity (TS) jumped by 180% to 16,758 TEU for the month of October 2022, compared to October 2021.
According to the balance sheet of Banque du Liban (BDL), the central bank’s total assets added 15.13% compared to last year, to reach $187.59B by end of November 2022. The increase was mainly due to the 49.91% year-on-year (YOY) rise in other assets, grasping 48.68% of BDL’s total assets and reaching $91.32B by end of November 2022. Nevertheless, on a monthly basis, other assets decreased significantly by $1.3B, since the Central Bank governor Riad Salameh stopped purchasing US dollars through exchange bureaus, but continued selling US dollar through the SAYRAFA platform. Furthermore, the gold account, representing 8.65% of BDL’s total assets, decreased by 2.05% yearly to reach $16.23B by end of November 2022. Interesting to note that Lebanon’s Central Bank audited the gold reserves at the request of the IMF and found that the amount of gold in its vaults identical to the amounts in its balance sheet. Meanwhile, BDL’s foreign assets, consisting of 8.1% of total assets dropped by 16.69% YOY and stood at $15.19B by end of November 2022, noting that BDL holds in its foreign assets $5B in Lebanese Eurobonds. On a different note, total volume of dollars injected into the market through Sayrafa platform reached $377M in the last two weeks of November, however, the foreign assets of BDL decreased by 87.8M during the same period. Therefore, the Central Bank has been absorbing from the market the total of $464.8M during this period. In more details, Sayrafa traded volume reached $10,803M since year start, whereas BDL’s foreign assets seem to have decreased at a slower path as they declined by $2.64B only.
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 2,745,805 checks from October 2021 to 1,399,559 checks by October 2022. Consequently, the value of total cleared checks decreased yearly by 10.87% to reach $27.48B by October 2022. In more details, the value of checks in LBP increased remarkably from $15.08B in October 2021 to reach $18.9B by October 2022, while value of checks in foreign currencies decreased significantly by 43.22% year on year (YOY) to reach $8.94B by October 2022. Accordingly, the dollarization rate of cleared checks in terms of value declined from 51.09% in October 2021 to 32.55% by October 2022. In the same token, the dollarization rate of checks in terms of volume fell by October 2022 to reach 45.91% instead of 52.26% by October 2021. In fact, most establishments won’t accept checks as a mode of payment, especially USD checks, since banks are further narrowing the limits on withdrawals from USD accounts. As a result, the Lebanese economy is heading towards more cash-dollarization.
Moreover, data released by the Ministry of Finance (MoF) recently indicated that Lebanon’s gross public debt hit $101.64B in July 2022, thereby recording an annual increase of 3.5%. The rise is mainly attributed to the annual increase in both local and foreign currency debt by 1.19% and 7.27%, respectively. In details, domestic debt constituted 60.44% of the total public debt and reached $61.43B in July 2022, calculated on the official rate of 1507.5. Meanwhile, total debt denominated in foreign currency (namely in USD) reached $40.21B over the same period. In addition, according to Lebanon’s Ministry of Finance, personnel costs slightly increased annually by 0.1% to reach $6.56B at the official rate of 1507.5 LBP per USD, by December 2021, compared to $6.55B by the end of 2020. The increase in personnel cost was mainly driven by a remarkable annual increase in the payments related to retirement compensations by 9.6% or $182.42M to stand at $2.07B. Meanwhile, salaries, wages and social benefits dropped by 2.6% or $104.14M to reach $3.968B while end of service indemnities decreased by 18.6% or $52.40M to $230.84M and transfers to public institutions to cover salaries declined by 6.4% to reach $289.88M by end of December 2021.
It is worth noting that BOP recorded a deficit of $2.86B by October 2022, compared to a deficit of $1.74B over the same period last year. Accordingly, Net foreign Assets (NFAs) of BDL fell by $2.94B, as BDL continued to make some intervention on Fx market through the “Sayrafa” rate while the NFAs of commercial banks increased by $84.5M by October 2022.
As for Lebanon’s consolidated commercial banks’ balance sheet, total assets decreased by 5.89% YTD and 7.97% YOY to stand at $164.64B by October 2022. On the assets side, currency and deposits with Central Bank represented a high figure of 66.89% of total assets; they decreased by 1.07% YOY to settle at $110.13B in October 2022. Deposits with the central bank (BDL) represented 96.92% of total reserves, and slightly decreased by 1.89% YOY, to reach $106.74B in October 2022. On the liabilities side, resident customers’ deposits were the main account, representing 60.26% of total liabilities; they decreased by 4.81% since October 2021 to reach $99.2B in October 2022. In more details, deposits in foreign currencies (74.93% of resident customers’ deposits) decreased by 7.98% YOY to reach $74.34B by October 2022, while deposits in LBP (25.07% of resident customers’ deposits) increased by 6.1% YOY to stand at $24.87B by October 2022. Customers seem to deposit more Lebanese pound into their accounts while others are conducting limited withdrawals in foreign currencies; in addition, most of transactions today are only paid in fresh dollars.
Amid these disruptions, BLOM Lebanon PMI registered signs of contraction at a faster pace with the headline PMI index falling from 49.1 in October 2022 to 48.1 in November 2022. In fact, output, new orders and new export orders dropped and reached low levels below 47, as business activity is highly affected by the governance vacuum and complete mismanagement of political leadership. However, on a bright note, we expect that the coming holiday season might have a short term relief on our economy.
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