The Purchasing Managers’ Index (PMI) is a crucial economic indicator that reflects the health and vitality of a country’s manufacturing sector. In Lebanon, amidst significant political and economic difficulties, PMI index improved incredibly to 50.2 in June 2023, which stands as a remarkable achievement. In fact, despite the ongoing presidential vacuum, Lebanon has witnessed positive developments, particularly as the summer season unfolds. Notably, the reopening of various businesses, improved activity at Hariri Airport, and a significant boost in employment opportunities have contributed to the upswing in the PMI index, reflecting a potential turning point for the nation’s struggling economy.
The activities at Hariri International Airport and the Port of Beirut have witnessed a significant upturn. The heightened level of operations at the airport indicates resurgence in the arrival of tourists and expatriates to Lebanon. Similarly, the increased activity at the Port of Beirut reflects a rebound in both domestic and international trade, creating a surge in demand for locally produced goods. This surge in trade volumes has not only injected much-needed momentum into the manufacturing sector but has also rejuvenated employment opportunities, thereby positively impacting Lebanon’s overall economic scenario.
In this report, we will delve into the factors contributing to Lebanon’s remarkable achievement of a PMI index of 50.2 in June 2023. By examining the impact of the summer season, the reopening of businesses, the surge in activity at Hariri Airport, and the improved employment prospects, we aim to shed light on the resilience and potential of Lebanon’s manufacturing sector in the face of political instability. It will offer insights into the underlying mechanisms that have facilitated this positive trend and explore the implications for Lebanon’s broader economic recovery.
The activity at Rafic Hariri International Airport improved in the fifth month of 2023 compared to the same month last year. In fact, the number of Beirut’s International airport passengers added 23.62% on annual basis and recorded 2,458,285 passengers by May 2023. The breakdown of the airport’s statistics revealed that total arrivals jumped by 24.8% year-on-year (YOY) to stand at 1,203,482 by May 2023 compared to 964,332 by May 2022. Meanwhile number of departing passengers climbed by a yearly 23.4% to reach 1,248,591 by May 2023, compared to 1,011,820 by May 2022. Nevertheless, transit passengers dropped from 12,422 by May 2022 to 6,212 transit passengers by May 2023. On a monthly basis, the activity at Rafic Hariri International Airport improved in May 2023 with total passengers rose remarkably by 13.57% compared to the month of April. In fact, arrivals increased by 18.55% and departures rose by 9.41% in May.
The latest statistics on activity at the Port of Beirut showed that container activity recorded an annual increase of 9.97% by the month of April 2023. Overall, Total container activity including transshipment (TEU+TS) increased by a yearly 9.97% to stand at 243,428 twenty-foot equivalent unit (TEU) for the month of April 2023, with transshipment activity (TS) adding 72.42% YOY to 74,684 TEU, while container activity (TEU) dropped by 5.22% on a yearly basis to 168,742 TEU by April 2023. On a monthly basis, total container activity added 6.31% to stand at 63,014 twenty-foot equivalent units (TEU), while container activity (TEU) dropped by 12.24% for the month of April 2023 compared to same month last year to reach 41,619 TEU. Meanwhile, transshipment activity (TS) grew by 80.55% to 21,395 TEU for the month of April 2023, compared to 11,850 TEU in April 2022.
According to the data revealed by “Rasamny Younis Motor sal”, Lebanese car market improved by 5.23% YOY by May 2023. In more details, for the period ending May 2023, the cumulative number of sold cars recorded a total of 2,594 compared to 2,465 cars by May 2022. On a monthly basis, 1,125 cars were sold in the month of May 2023 compared to 763 in May 2022. In more details, during the month of May 2023, cars were distributed as follows: Japanese cars’ share stood at 38%, European cars accounted for 26%, and Korean Cars grasped 20% of the total. Noting that the leading sellers of vehicles in Lebanon are Toyota, kia and Hyundai, with number of vehicles sold in the month of May alone totaled 219, 132, and 94 respectively, out of 1,125 sold cars.
According to Ernst & Young Middle East hotel benchmark survey, the occupancy rate in Beirut’s 4- and 5-star hotels reached 36% percentage points (pp) by April 2023, down from last year’s percentage of 39.1%. In more details, the average room rate in dollars currency in Lebanon has decreased by 7% to stand at $52.4 while the RevPAR dropped by 14.4% to reach $18.9 for the month of April 2023. Moreover, the average room rate in Lebanese pound has increased significantly by 235.6% 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 5,074,294 in April 2023 while RevPAR (Revenue per available room) jumped by 208.9% from LBP 591,740 in April 2022 to LBP 1,827,889 in April 2023. It is important to acknowledge that the occupancy rate in Beirut 4 and 5- stars hotels experienced a decline in April 2023 due to a preference among tourists and expats for booking guesthouses and Airbnb accommodations. In fact, a significant number of guesthouses located near the beach are reserved well in advance for the summer season.
Nevertheless, Lebanon’s inflation rate remains near historically high level at 260.21% in May 2023. In fact, recently Lebanon’s supermarket started to list their prices in US dollars and the country became more cash-based, thus explaining the significant inflationary pressures. Furthermore, the Finance Ministry reported that the customs dollar rate will rise to LBP 86,000 per dollar for all types of imported goods, a level almost equivalent to the central bank’s Sayrafa rate (LBP 86,200 per dollar) as of May 12, 2023. 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 182.2% by May 2023. Also, “Owner-occupied” rental costs increased by 208.3% year-on-year (YOY) and the prices of “water, electricity, gas, and other fuels” followed a significant increase by 174.06% YOY. Looking at the prices of “Food and non-alcoholic beverages” (20% of CPI), it surged by 304.25% yearly. In turn, the average prices of “Transportation” (13.1% of the CPI) and “Health” (7.7% of the CPI) recorded hikes of an annual 259.93% and 303.2% respectively by May 2023. Also, “Restaurant and Hotels” (2.8% of CPI) increased yearly by 375.52% by May 2023.
Furthermore, according to the Customs Administration, Lebanon’s trade deficit totaled $15.56B by December 2022 (the latest available data) 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.
According to the balance sheet of Banque du Liban (BDL) by mid-June 2023, the central bank’s total assets fell by 37.12% compared to last year, to reach $104.72B by mid-June 2023, amid adopting the 15,000 LBP/USD official rate by BDL. The fall was mainly due to the 89.61% year-on-year (YOY) drop in other assets, grasping 6.58% of BDL’s total assets and reaching $6.89B by mid-June 2023. Furthermore, the gold account, representing 17.04% of BDL’s total assets, increased by 6.13% yearly to reach $17.85B by mid-June 2023. BDL’s foreign assets, consisting of 13.76% of total assets dropped by 7.09% YOY and stood at $14.41B by mid-June 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 $1,903M in the first two weeks of June 2023, meanwhile, BDL’s foreign assets decreased only by $49.94M during the same period.
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 878,074 checks by May 2022 to 231,909 checks by May 2023. Moreover, the cumulative value of cleared checks in local currency increased remarkably from LBP 13,765B by May 2022 to LBP 22,667B by May 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 $4,943M by May 2022 to $1,943M by May 2023. Moreover, the volumes of cleared checks in Lebanese Pounds and foreign currencies witnessed significant yearly drops of 61.91% and 85.92% respectively to settle at 171,752 and 60,157 checks, by May 2023. Accordingly, the dollarization rate of checks in terms of volume fell from 48.64% in May 2022 to 25.94% in May 2023. Notably, the number of returned checks fell substantially by 66.87% YOY to stand at 2,047 checks. Moreover, the value of returned checks in foreign currency increased by 67.16% by May 2023 to reach $112M, additionally the value of returned checks in local currency increased remarkably by 405.62% YOY to reach LBP 450B by May 2023.
Moreover, the data released by the Ministry of Finance (MoF) indicated that Lebanon’s gross public debt hit $102.47B in January 2023, thereby recording an annual increase of 3.2% YOY. The rise is mainly attributed to the annual increase in foreign currency debt (namely in USD) by 7.35%, to stand at $41.57B by January 2023. In turn, total foreign debt grasped a stake of 40.57% of the total public debt by January 2023. It is worth mentioning that $14.43B 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) rose slightly by 0.57% to stand at $60.89B in January 2023, and constituted 59.43% 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 13.97% YOY to $41.85B in January 2023.
According to BDL’s latest monetary report, the BOP recorded a surplus of $1.24B by April 2023, far exceeding the deficit over the same period last year of $1.7B. Accordingly, Net foreign Assets (NFAs) of BDL fell by $783.6M, as BDL has continued to make some intervention on Forex market through the “Sayrafa” rate while the NFAs of commercial banks rose by $2.02B by April 2023.
According to Lebanon’s consolidated commercial banks’ balance sheet, total assets decreased annually by 32.81% to stand at $115.64B by April 2023 amid BDL’s adoption of a new exchange rate of LBP 15,000 per USD. On the assets side, currency and deposits with Central Bank represented a high figure of 74.02% of total assets; they dropped annually by 24.32% to settle at $85.59B in April 2023. Deposits with the central bank (BDL) represented 98.99% of total reserves, and decreased by 23.29% YOY, to reach $84.73B in April 2023. Furthermore, Vault cash in Lebanese pound fell by 67.27% on a yearly basis to stand at $866.53M by the same period. On the liabilities side, resident customers’ deposits were the main account, representing 64.86% of total liabilities; they decreased by 27.1% since April 2022 to reach $75.01B in the month of April 2023. In more details, deposits in foreign currencies (95.49% of resident customers’ deposits) decreased by 7.28% YOY to reach $71.63B by April 2023, additionally deposits in LBP (4.51% of resident customers’ deposits) fell by 86.82% YOY to stand at $3.38B by April 2023. Noting, of course, that Lebanon has become dollarized and cash based.
Finally, Byblos Bank recently published its un-audited financial results for end March 2023. As expected, the results were impacted by the current crisis affecting the Lebanese economy and financial markets. Based on the new official exchange rate of 15,000 LBP per 1 USD effective February 1, 2023, instead of the prior 1,507 LBP, the Bank incurred losses in Q1 2023 that amounted to $8.8 million against losses of $43.5 million in Q1 2022. In terms of the balance sheet, total assets stood at $12.2 billion, less by 31.5% than assets at end December 2022. Likewise, loans to customers were $0.69 billion, down by 49.1%; customers’ deposits stood at $10.3 billion, lower by 17.1%; and shareholders’ equity amounted to $0.9 billion, down by 70.1%. As a result, the loans to deposits ratio fell from 14.2% to 6.7% as loans fell faster than deposits in Q1 2023.
In conclusion, BLOM Lebanon PMI registered signs of expansion at a higher pace with the headline PMI index posting 50.2 in June, up from 49.4 in May, and 49.5 in April. In fact, Lebanon’s private sector has demonstrated remarkable resilience amid the economic turmoil faced by the country, but this shouldn’t be construed as a substitute for reforms. It is crucial to recognize that the private sector’s resilience alone cannot fully resolve Lebanon’s intricate economic crisis. To foster sustainable growth and attract both domestic and foreign investments, it is imperative to undertake structural reforms, ensure transparent governance, and cultivate a supportive business environment. Lebanon’s government, policymakers, and institutions must join forces in a collaborative effort to address the underlying causes of the crisis. By implementing measures that promote stability, strengthen institutions, and enhance the business climate, Lebanon can take significant steps towards overcoming its economic challenges.