BLOM Lebanon PMI rises to four-month high in February, but inflationary pressures intensify

The private sector in Lebanon witnessed further signs of deterioration in February 2023, but at a softer pace. In fact, BDL adopted a new official exchange rate of LBP 15,000 per USD, effective 1/2/2023 after 28 years of maintaining a pegged currency of LBP 1507.5 per USD. However, the shift from the old rate of 1,507 to 15,000 is still far off the parallel market; as the national currency fell to a new low of LBP 88,000 by the end of the month. Consequently, it seems exceedingly difficult that the multiple exchange rates will be unified, as it was set as one of several conditions by the International Monetary Fund to obtain a $3 billion aid package that would help the Lebanese economy to emerge from the meltdown.

This devaluation of the local currency is having an immense effect on its people since many of them get paid in Lebanese pound, thus resulting in a dramatic decrease in purchasing power. Indeed, Lebanon has been moving towards a cash-based and dollarized economy given further restrictions by banks on transactions. As such, businesses have been forced to price their items in dollars in order to avoid the fluctuation of the Lebanese pound, allowing their customers to pay either in dollars or in Lebanese pounds, but only on the basis of the daily parallel/black market rate. In some industries only dollar payments are accepted. The phenomenon of “dollarization”, whereby every good and service is priced in dollars rather than Lebanese pound, has been a long time coming; however, is seems both beneficial and detrimental.

Furthermore, in February, Lebanese policymakers tripled the tariffs on imports in local currency. In fact, customs fees will now be calculated at a dollar exchange rate of LBP 45,000 per USD instead of LBP 15,000 per USD. The irony is that the state seeks to boost its revenues amid a worsening economic crisis and a continued hyperinflation for the 31st consecutive month, with no incentive to put in place a recovery plan. Meanwhile, parliamentary blocs are yet to agree on the election of a new Lebanese president and warned against the dangers created by the presidential vacuum. Indeed, mismanagement and corruption remain at the centre of the Lebanese political system and no hope is in sight for Lebanese citizens.

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, the activity at Rafic Hariri International Airport improved remarkably in January 2023 as the number of airport passengers added 34.81% YOY and recorded 490,266 passengers by January 2023. The breakdown of the airport’s statistics revealed that total arrivals jumped by 37.26% year-on-year (YOY) to stand at 210,318 by January 2023 compared to 153,230 by January 2022. Meanwhile number of departing passengers climbed by a yearly 34.16% to reach 279,223 by January 2023, compared to 208,123 by January 2022. Nevertheless, transit passengers decreased from 2,332 by January 2022 to 725 transit passengers by January 2023. On a monthly basis, the activity at Rafic Hariri International Airport deteriorated in January 2023 as total passengers decreased remarkably by 11.12% compared to the month of December. In more details, arrivals fell by 30.58% while departures grew by 14.07% in January, as most expats left the country after the holiday season.

Lebanon’s inflation rate eased from a 239.68% in January 2022 to register softer levels of 123.53% in January 2023, however higher than the previous month of December 2022 at 121.99%. Unfortunately, inflation remains at a historical elevated level and is expected to further increase in the months ahead as most organizations are discussing a full dollarization plan. That is in addition to the fact that prices went up as customs and taxes are being collected at the rate of 45,000 LBP/. 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 56.28% by January 2023. Also, “Owner-occupied” rental costs increased by 9.18% year-on-year (YOY) and the prices of “water, electricity, gas, and other fuels” followed a significant increase by 162.82% YOY.

According to the data revealed by “Rasamny Younis Motor sal”, Lebanese car market witnessed a significant uptick of 113.53% annually in the beginning of 2023. In fact, on a monthly basis, 647 cars were sold in the month of January 2023 compared to 303 in January 2022 and 333 in the previous month of December 2022. In more details, during the month of January 2023, cars were distributed as follows: Japanese cars took the highest share of 40.03%, European cars accounted for 19.63%, and Korean Cars grasped 18.7% of the total. Noting that the leading sellers of vehicles in Lebanon are Toyota, Kia and MG, with number of vehicles sold in the month of January alone totaled 156, 79, and 48 respectively, out of 647 sold cars.

Real Estate transactions witnessed an annual decrease of 27.34% to reach 79,990 transactions by December 2022 compared to 110,094 transactions same period last year. In the same token, the value of total RE transactions stood at $14.36B by December 2022, which is 7.65% lower than $15.55B in the same period last year. On a monthly basis, the number of RE transactions stood at 2,610 in the month of December 2022, compared to 9,874 transactions in the previous month of November 2022, and to 16,440 transactions in December 2021.  In details, South region holds the biggest share of real estate transactions at 926, or 35.48% of total RE transactions, in the month of December 2022, followed by the Zahle at 476 transactions or 18.24% of total RE transactions. Moreover, the breakdown of RE activity by value for December 2022 showed that Beirut grasped the lion’s share of the total value of RE transactions, equivalent of 49.45% and worth $700.84M, while the South followed, constituting 39.23% of the total and worth $556M. 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 year 2021 and 2020. The slowdown could be justified by lower demand on Real Estate especially as owners are requesting full payments in fresh while prices are gradually increasing and readjusting to prices before the crisis. The outlook for the coming year might be gloomy given that taxes will be valued at higher exchange rate.

Furthermore, according to the Customs Administration, Lebanon’s trade deficit totaled $15.56B by December 2022 up from $9.75B registered in the same period last year. Total imported goods added 39.65% annually to $19.05B while total exports decreased by 10.16% to stand at $3.49B by December 2022. In details, the “Mineral products” grasped the lion’s share of total imported goods with a stake of 29.29%. “Machinery; electrical instruments” ranked second, composing 12.87% of the total while “Vehicles, aircraft, vessels, transport equipment” and “Pearls, precious stones and metals” grasped the respective shares of 10.5% and 8.83%, respectively. Meanwhile, the value of imported “Mineral products” jumped by 43.94% YOY, from $3.88B to $5.58B, by December 2022. The increase is mainly attributed to the surge in fuel prices leading to greater costly imported fuel bills. Furthermore, the value of imported “Vehicles, aircraft, vessels, transport equipment” rose significantly by 78.13% from $1.12B to $2B by December 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 16.28% to stand at 715,099 twenty-foot equivalent unit (TEU); container activity (TEU) added 16.71% on a yearly basis to 561,202 TEU by December 2022, while transshipment activity (TS) added 9.53% YOY to 146,342 TEU by the same period. On a monthly basis, total container activity added 37.04% to stand at 60,755 twenty-foot equivalent units (TEU), while container activity (TEU) added 14.34% for the month of December 2022 compared to same month last year to reach 41,928 TEU. Similarly, transshipment activity (TS) grew by 80.44% to 13,827 TEU for the month of December 2022, compared to 7,663 TEU in December 2021.

According to the balance sheet of Banque du Liban (BDL) at end February 2023 the gold account representing 16.39% of BDL’s total assets, decreased by 4.85% yearly to reach $16.7B. BDL’s foreign assets, consisting of 14.46% of total assets dropped by 12.98% YOY and stood at $14.74B by end of February 2023, noting that BDL holds in its foreign assets $5B in Lebanese Eurobonds. On a different note, total volume of dollars on Sayrafa platform reached $218M in the last two weeks of February 2023 while BDL’s foreign assets decreased only by $79.39M during the same period. Recently, the volume of dollars on Sayrafa platform fell dramatically as the average trading volume reached $24.22M in the last two weeks of February compared to an average of $46.42M in the last two weeks of the previous month of January. Indeed, during the last two weeks of February, Sayrafa was restricted to public sector employees.

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 173,378 checks by January 2022 to 68,843 checks by January 2023. However, the value of total cleared checks increased yearly by 104.28% to reach $5.38B by January 2023. This upsurge is driven by a significant increase in value of Lebanese checks which reflects a larger percentage of discounting Lebanese checks in the market. In more details, the value of checks in LBP increased remarkably from $1.65B in January 2022 to reach $4.53B by January 2023, while value of checks in foreign currencies decreased by 13.18% year on year (YOY) to reach $0.86B by January 2023. Accordingly, the dollarization of cleared checks in terms of value declined from 37.42% in January 2022 to 15.9% by January 2023. In the same token, the dollarization rate of checks in terms of volume fell from 50.68% in January 2022 to 31.23% in January 2023. In fact, checks are less accepted as a mode of payment since the economy is heading towards full cash-dollarization.

BLOM Bank published on 6/2/2023 its consolidated but un-audited financial results for end 2022. The results obtained were naturally affected by the impact of the financial and economic crisis that has struck Lebanon since October 2019. Net profits came to $4.936 million, compared to $4.416 million last year. In addition, BLOM booked positive $317.824 million in provisions for expected credit losses against negative $456.619 million booked in 2021. In terms of balance sheet items, assets stood at $25.796 billion, lower by 2.54% from end year 2021; deposits were $20.433 billion, up by 0.26%; loans decreased to $1.715 billion, less by 23.51%; and shareholders’ equity stood at $3.131 billion, down by 1.59%.

Moreover, the data released by the Ministry of Finance (MoF) recently indicated that Lebanon’s gross public debt hit $101.95B in October 2022, thereby recording an annual increase of 2.1% YOY. The rise is mainly attributed to the annual increase in foreign currency debt (namely in USD) by 7.02%, to stand at $40.82B by October 2022. In turn, total foreign debt grasped a stake of 40.04% of the total public debt by October 2022. It is worth mentioning that $13.48B represents the unpaid Eurobonds, their coupons and accrued interests, due to the default on government Eurobonds in March 2020. Meanwhile, debt in local currency (denominated in LBP) fell slightly by 0.86% to stand at $61.13B in October 2022, and constituted 59.96% of the total public debt. Looking at net domestic debt, which excludes public sector deposits with the central bank and commercial banks, it decreased remarkably by 10.9% YOY to $44.17B in October 2022. As a result, the public deposits are estimated at $16.96B, amassed to cover increasing salaries and social assistance payments to public employees.

It is worth noting that BOP recorded a cumulative deficit of $3.2B by December 2022, notably exceeding the deficit over the same period last year which totaled only $2B. Accordingly, Net foreign Assets (NFAs) of BDL fell by $3.04B, as BDL has continued to make some intervention on Forex market through the “Sayrafa” rate while the NFAs of commercial banks dropped by $152.9M by December 2022. Moreover, on a monthly basis, the BOP recorded a surplus of $17.1M, the third in the year; as NFAs of BDL decreased by $5.4M whereas NFAs of Commercial banks increased by $22.5M.

As for Lebanon’s consolidated commercial banks’ balance sheet, total assets decreased annually by 3.36% to stand at $169.05B by December 2022. Note that valuation in USD is still at the old official rate of 1507.5 LBP/USD. On the assets side, currency and deposits with Central Bank represented a high figure of 64.95% of total assets; they dropped annually by 1.76% to settle at $109.80B in December 2022. Deposits with the central bank (BDL) represented 96.04% of total reserves, and slightly decreased by 3.22% YOY, to reach $105.46B in December 2022. Meanwhile, Vault cash in Lebanese pound jumped by 55.11% on a yearly basis to stand at $4.34B by the same period. The increase is attributed to the volumes of cash that banks are receiving from Sayrafa transactions. On the liabilities side, resident customers’ deposits were the main account, representing 59.25% of total liabilities; they decreased by 3.15% since December 2021 to reach $100.15B in December 2022. In more details, deposits in foreign currencies (73.04% of resident customers’ deposits) decreased by 7.93% YOY to reach $73.15B by December 2022, while deposits in LBP (26.96% of resident customers’ deposits) increased by 12.80% YOY to stand at $27B by December 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.

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.

Despite these disruptions, BLOM Lebanon PMI registered signs of contraction but at a softer pace since December with the headline PMI index posting 48.8 in February, up from 47.7 in January and 47.3 in December.  Output and new orders drove the index up, yet the overall big picture of Lebanon seems to reflect a depressed performance of the private sector. In fact, it is hard to believe that we would see anytime soon the PMI above the expansionary 50 marks, as Lebanon has a lot to consider in the upcoming period, including development associated with the persistent political deadlock. That is in addition to the continuous delay in implementing the needed reforms and legislations as well as finalizing the agreement with the IMF. But miracles can always happen!


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