Although business conditions in Lebanon’s private sector declined in April, they were still comparable to the seven-month high seen in March, indicating a slower pace of deterioration. In fact, the Blom Lebanon PMI slightly decreased from 49.7 in March to 49.5 in April despite some noteworthy improvements such as higher export orders, employment, quantity and stock of purchases. Additionally, although the situation in Lebanon seems stabilizing, it is important to note that this does not mean the Lebanese economy has fully recovered, but rather that it is slowly improving from the low point of the previous crisis years. To accelerate this adjustment to a much higher level, a credible and well-governed reform program remains highly essential.
This month, BDL issued a new Circular No 165 on 19/04/2023 in relation to the electronic settlement operations related to “banknotes” or “cash money”. The Central Bank of Lebanon took the initiative to declare several decisions within the monetary and credit laws that aim to organize the work of cash money and fresh checks and legalize their exchange through BDL in line with the exceptional circumstances that the Lebanese economy is going through. In more details, the circular stated that all banks must open new accounts with cash (Banknotes) in US dollars and Lebanese pounds, to be used exclusively for settling electronic bank transfers for cash money and for settling checks clearing that are traded with cash money. Nevertheless, no specific amounts are subject to be deposited in these new cash accounts, Hence the circular claimed that banks are free to determine the value of its deposits in the new accounts, provided that the necessary balance is always available for the success of the settlement operations. Moreover, the circular allowed cash transfers to be made electronically, and also permits the exchange of checks issued by Fresh accounts in Lebanese pounds and US dollars. It is expected that this will be followed by the issuance of payment cards linked to cash accounts, which can be used without conditions or any additional commissions at all points of sale in Lebanon. This reduces the burden of using banknotes to pay for purchases and others.
The activity at Rafic Hariri International Airport improved in March 2023 compared to the same month last year. In fact, the number of Beirut’s International airport passengers added 23.49% on annual basis and recorded 1,363,135 passengers by March 2023. The breakdown of the airport’s statistics revealed that total arrivals jumped by 25.13% year-on-year (YOY) to stand at 644,088 by March 2023 compared to 514,736 by March 2022. Meanwhile number of departing passengers climbed by a yearly 22.97% to reach 715,406 by March 2023, compared to 581,756 by March 2022. Nevertheless, transit passengers decreased from 7,370 by March 2022 to 3,641 transit passengers by March 2023. On a monthly basis, the activity at Rafic Hariri International Airport increased in March 2023 with total passengers increased remarkably by 14.08% compared to the month of February. In fact, arrivals went up by 17.41%, while departures added 10.85% in March.
Lebanon’s inflation rate jumped from a 208.13% in March 2022 to register an all-time high level of 263.84% in March 2023. The inflation headline was historically the highest one registered in Lebanon as beginning March 1, 2023 Lebanon’s supermarket started to list their prices in US dollars, mainly due to the rapid deterioration of the domestic currency against the dollar. In addition, customs dollar rate has been adjusted from 15,000 LBP/USD to 45,000 LBP/USD which added more pressure on prices. In more details, the cost of “Housing and utilities”, inclusive of water, electricity, gas and other fuels (grasping 28.4% of the CPI) added a yearly 130% by March 2023. Also, “Owner-occupied” rental costs increased by 91.62% year-on-year (YOY) and the prices of “water, electricity, gas, and other fuels” followed a significant increase by 211.82% YOY. Looking at the prices of “Food and non-alcoholic beverages” (20% of CPI), it surged by 352.34% yearly and “Restaurant and Hotels” (2.8% of CPI) increased yearly by 385.54% by March 2023. “Communication” which holds a share of 4.5% of CPI skyrocketed by 620.80% as fees are priced at Sayrafa rate which jumped during the month of March from 45,400LBP/USD to end up the month at a high of 90,000 LBP/USD.
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.
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 6.03% by the month of February 2023. 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 6.03% to stand at 110,493 twenty-foot equivalent unit (TEU) for the month of February 2023, with container activity (TEU) dropped by 8.19% on a yearly basis to 77,351 TEU by February 2023, while transshipment activity (TS) added 66.02% YOY to 33,142 TEU by the same month. On a monthly basis, total container activity added 2.56% to stand at 55,623 twenty-foot equivalent units (TEU), while container activity (TEU) dropped by 13.72% for the month of February 2023 compared to same month last year to reach 38,826 TEU. Meanwhile, transshipment activity (TS) grew by 81.86% to 16,797 TEU for the month of February 2023, compared to 9,236 TEU in February 2022.
According to the balance sheet of Banque du Liban (BDL) by end of April 2023, the central bank’s total assets fell by 38.72% compared to last year, to reach $102.11B by end of April 2023, amid adopting the 15,000 LBP/USD official rate by BDL. The fall was mainly due to the 83.32% year-on-year (YOY) drop in other assets, grasping 10.63% of BDL’s total assets and reaching $10.86B by end of April 2023. Furthermore, the gold account, representing 17.91% of BDL’s total assets, increased by 3.63% yearly to reach $18.29B by end of April 2023. Moreover, BDL’s foreign assets, consisting of 14.16% of total assets dropped by 11.05% YOY and stood at $14.46B by end of April 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 $686.85M in the last two weeks of April 2023 while, BDL’s foreign assets dropped by $39.8M only during the same period.
According to Ernst & Young Middle East hotel benchmark survey, the occupancy rate in Beirut’s 4- and 5-star hotels reached 36.2% percentage points (pp) by February 2023, down from last year’s percentage of 39%. It is unfortunate that Lebanon has the lowest hotel occupancy rate among all Arab countries, despite his favorable Mediterranean weather, cheaper tourism, as well as attractive winter season. In fact, we assume that Lebanon is most likely welcoming expats rather than tourists in the high season of holidays and summer due to high country risk. In more details, the average room rate in dollars currency in Lebanon has decreased significantly by 40% to stand at $41 while the RevPAR dropped by 44.3% to reach $15 for the month of February 2023. Moreover, the average room rate in Lebanese pound has increased significantly by 155.7% due to the sharp deterioration of the national currency despite the drop in room rate in dollars prices. In details, the average room rate in LBP reached LBP 3,615,018 in February 2023 while RevPAR (Revenue per available room) jumped by 137.4% from LBP 551,630 in February 2022 to LBP 1,309,411 in February 2023.
According to the data published by the Association of Lebanese Banks’ (ABL), the total number of cleared checks in the Lebanese financial system slumped from 565,271 checks by March 2022 to 159,827 checks by March 2023. Moreover, the cumulative value of cleared checks in local currency increased remarkably from LBP 8,340B by March 2022 to LBP 14,886B by March 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. Meanwhile, the cumulative value of cleared checks in foreign currency fell from $2,994M by March 2022 to $1,555M by March 2023. Notably, the volumes of cleared checks in Lebanese Pounds and foreign currencies witnessed significant yearly drops of 59.35% and 84.34% respectively to settle at 115,975 and 43,852 checks, by March 2023. Accordingly, the dollarization rate of checks in terms of volume fell from 49.52% in March 2022 to 27.44% in March 2023. Also, interesting to note that average check value in Lebanese Pounds increased from LBP 29.3 M to LBP 128.3M between March 2022 and March 2023. Moreover, the number of returned checks fell substantially by 69.2% YOY to stand at 1,280 checks. Moreover, the value of returned checks in foreign currency dropped by 34.78% by March 2023 to reach $30M, while the value of returned checks in local currency increased remarkably by 517.02% YOY to reach LBP 290B by March 2023.
Moreover, the data released by the Ministry of Finance (MoF) recently indicated that Lebanon’s gross public debt hit $101.82B in December 2022, thereby recording an annual increase of 1.4% YOY. The rise is mainly attributed to the annual increase in foreign currency debt (namely in USD) by 7.32%, to stand at $41.34B by December 2022. In turn, total foreign debt grasped a stake of 40.6% of the total public debt by December 2022. It is worth mentioning that $14.23B 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 2.24% to stand at $60.48B in December 2022, and constituted 59.4% 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 12.56% YOY to $42.93B in December 2022.
According to BDL’s latest monetary report, the BOP recorded a surplus of $1.64B by February 2023, far exceeding the deficit over the same period last year of $954.9M. Accordingly, Net foreign Assets (NFAs) of BDL fell by $501.7M, as BDL has continued to make some intervention on Forex market through the “Sayrafa” rate while the NFAs of commercial banks rose by $2.14B by February 2023.
As for Lebanon’s consolidated commercial banks’ balance sheet, total assets decreased annually by 33.8% to stand at $115B by February 2023 amid BDL’s adoption of a new official exchange rate of LBP 15,000 per USD. On the assets side, currency and deposits with Central Bank represented a high figure of 73.86% of total assets; they dropped annually by 24.78% to settle at $84.94B in February 2023. Deposits with the central bank (BDL) represented 99.44% of total reserves, and decreased by 23.03% YOY, to reach $84.46B in February 2023. Furthermore, Vault cash in Lebanese pound fell by 84.98% on a yearly basis to stand at $476.88M by the same period. The drop is attributed to the calculation based on the new official exchange rate of LBP 15000 per USD. On the liabilities side, resident customers’ deposits were the main account, representing 65.22% of total liabilities; they decreased by 27.15% since February 2022 to reach $75B in the month of February 2023. In more details, deposits in foreign currencies (96.46% of resident customers’ deposits) decreased by 8% YOY to reach $72.35B by February 2023, additionally deposits in LBP (3.54% of resident customers’ deposits) fell by 89.08% YOY to stand at $2.65B by February 2023. Noting that Lebanon has become dollarized and cash based.
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. Interesting to note that the Council of Ministers has recently approved a 7-fold increase in wages and salaries to the public sector, thus increasing the total bill to about LBP 70 Trillion a year.
Despite these developments, BLOM Lebanon PMI registered signs of contraction but at a softer pace with the headline PMI index posting 49.5 in April, down from 49.7 in the previous month of March. While Lebanon appears to be stabilizing, the PMI index remains below the crucial 50 threshold, likely due to the country’s prolonged presidential vacuum and the unprecedented economic crisis with no signs of reform. Unfortunately, the private sector in Lebanon has been highly impacted by the decay of governmental and political organizations, though recent signs seem to indicate that it is adjusting upwards from the low equilibrium of the crisis period.