It’s been a turbulent year for the global economy, and in particular, for Lebanon. The deceleration of the Lebanese economy was broad-based with many sectors poised to contract under an uncertain outlook since the outbreak of October revolution; crucially however, the caretaker Prime Minister Najib Mikati announced that the economy in Lebanon has registered a growth of 2% this year despite rising political risks.
Overall, the growth could be credited to several factors, most notably, the improvement in tourism activity and the increase in remittances from Lebanese working abroad. In addition to lower inflation and higher public sector wages that had a quasi-improvement on social stability in the country, even so, inflation remains stickier to the upside, which suggests that policymakers need steady hand as storm clouds gather over Lebanon and insists on a formation of a new government that adopts fundamental reforms, and the completion of a final agreement with the IMF.
Meanwhile, on the parallel market this month, the Lebanese national currency has been wavering at all-time high levels of 43,370 LBP/USD with a minimum of 41,100 and a maximum of 47,800. As a result, Lebanon’s Central Bank announced lowering the value of the Lebanese exchange rate on Sayrafa platform from 31,200 LBP/USD to 38,000 LBP/USD with unlimited quota for individuals and companies in a bid to ease the currency’s most severe devaluation in Lebanese history.
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).
In the same token, 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 remarkable drop in the value of the Lebanese currency as well as the persistent volatility in worldwide elevated energy prices. Surprisingly, Lebanon’s monthly inflation rate eased from a 201.07% in November 2021 to register softer levels of 142.37% in November 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% by November 2022. Also, “Owner-occupied” rental costs increased by 10.99% year-on-year (YOY) and the prices of “water, electricity, gas, and other fuels” followed a significant increase by 234.69% 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 once the customs would be collected at the rate of 15,000 LBP/USD instead of 1507.5 LBP/USD.
Real Estate transactions witnessed an annual decrease of 17.38% to reach 77,380 transactions by November 2022 compared to 93,654 transactions same period last year. In the same token, the value of total RE transactions stood at $12.94B by November 2022, which is 3.2% lower than $13.37B in the same period last year. On a monthly basis, the number of RE transactions stood at 9,874 in the month of November 2022, compared to 11,006 transactions in the previous month of October 2022, and to 10,708 transactions in November 2021. In details, Baabda region holds the biggest share of real estate transactions at 3,048, or 30.87% of total RE transactions, in the month of November 2022, followed by the South at 1,726 transactions or 17.48% of total RE transactions. Furthermore, Beirut grasped 13.66% of total RE activity in November 2022 while the breakdown of RE activity by value for November 2022 showed that Beirut grasped the lion’s share of the total value of RE transactions equivalent to 46.53% with the South followed with 19.15% of the total. 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. 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.
Furthermore, according to the Customs Administration, Lebanon’s trade deficit totaled $14.57B up from $9.10B registered in the same period last year. Total imported goods added 43.86% annually to $17.79B while total exports decreased by 1.55% to stand at $3.21B by November 2022. The “Mineral products” grasped the lion’s share of total imported goods with a stake of 29.05%. “Machinery; electrical instruments” ranked second, composing 13.09% of the total while “Vehicles, aircraft, vessels, transport equipment” and “Pearls, precious stones and metals” grasped the respective shares of 10.88% and 8.97%, respectively. Meanwhile, on an annual basis, the value of imported “Mineral products” jumped by 44.13%, from $3.58B to $5.17B by November 2022. The increase is mainly attributed to the surge in fuel prices leading to marginally greater costly imported fuel bills. Noting that the value of mineral fuel and mineral oil imported added alone 33.32% from $3.78B by November 2021 to $5.04B by November 2022.
The latest statistics on activity at the Port of Beirut showed that container activity recorded an annual increase of 14.66% by the month of November 2022. In more details, 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 14.66% to stand at 654,344 twenty-foot equivalent unit (TEU); container activity (TEU) added 16.91% on a yearly basis to 519,274 TEU by November 2022, while transshipment activity (TS) added 5.74% YOY to 133,178 TEU by the same period. On a monthly basis, total container activity added 19.54% to stand at 60,510 twenty-foot equivalent units (TEU), while container activity (TEU) added 12.01% for the month of November 2022 compared to same month last year to reach 43,244 TEU; whereas, transshipment activity (TS) grew by 27.2% to 15,277 TEU for the month of November 2022, compared to 12,010 TEU in November 2021.
According to the balance sheet of Banque du Liban (BDL), the central bank’s total assets added 16.25% compared to last year, to reach $189.70B by end of December 2022. The increase was mainly due to the 51.93% year-on-year (YOY) rise in other assets, grasping 49.25% of BDL’s total assets and reaching $93.43B by end of December 2022.. Furthermore, the gold account, representing 8.78% of BDL’s total assets, increased by 0.33% yearly to reach $16.65B by end of December 2022 Meanwhile, BDL’s foreign assets, consisting of 8% of total assets dropped by 14.83% YOY and stood at $15.18B by end of December 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 $922M in the month of December, however, the foreign assets of BDL decreased by 3.16M during the same period. Therefore, the Central Bank has been absorbing from the market the total of $918.84M during this period. In more details, Sayrafa traded volume reached $11.72B 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 2.948.730 checks from November 2021 to 1,480,354 checks by November 2022. Consequently, the value of total cleared checks decreased yearly by 1.27% to reach $33.17B by November 2022. In more details, the value of checks in LBP increased remarkably from $16.9B in November 2021 to reach $23.46B by November 2022, while value of checks in foreign currencies decreased significantly by 41.85% year on year (YOY) to reach $9.71B by November 2022. Accordingly, the dollarization of cleared checks in terms of value declined from 49.7% in November 2021 to 29.27% by November 2022. In the same token, the dollarization rate of checks in terms of volume fell from 51.89% in November 2021 to 45.34% in November 2022. In fact, checks are less accepted as a mode of payment since the economy is heading towards full cash-dollarization.
Moreover, data released by the Ministry of Finance (MoF) recently indicated that Lebanon’s gross public debt hit $103.64B in August 2022, thereby recording an annual increase of 5%. The rise is mainly attributed to the annual increase in both local and foreign currency debt by 3.62% and 7.18%, respectively. In details, debt in local currency (denominated in LBP) stood at $63.23B in August 2022. As such, domestic debt constituted 61.01% of the total public debt. Meanwhile, total debt denominated in foreign currency (namely in USD) reached $40.41B over the same period. In turn, total foreign debt grasped a stake of 38.99% of the total public debt by August 2022. 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.
Amid these disruptions, BLOM Lebanon PMI registered signs of contraction at a faster pace since January with the headline PMI index posting 47.3 in December, below the 50.0 no-change mark and down from 48.1 in November. In fact, the index signaled the quickest decline in 11 month with new order intakes are the lowest for nine month while purchasing activity was pulled back in December driven by weaker domestic demand and significant drop in the value of domestic currency. Despite promises of a festive season, constant distress among the Lebanese people remain noticeable as absence of head of State, failure of implementing the necessary reforms and political standoffs are to complicate things in the next period. Our only hope is that solution would appear in the short-term period given the severity of the economic situation.