In a moment of optimism, the BLOM Lebanon PMI experienced a noteworthy rise in July, reaching 50.3, signaling the strongest improvement in the Lebanese economy since June 2013. The preceding June reading of 50.2 adds to the significance of this achievement. What makes this development intriguing is its basis in stronger domestic demand and increased employment rates. Moreover, there are promising indications for economic activity, particularly during the tourist summer season. We hope that this positive outlook will persist in the long term, contingent upon successful presidential elections, an effective economic reform program, and crucially, lasting monetary and exchange rate stability.
However, amidst this positive news, it is worth noting that the Lebanese central bank governor will end his 30-year tenure on July 31. The governor’s departure marks the end of an era and adds an element of uncertainty to the economic landscape. It will be vital for the country to appoint a suitable successor who can continue the efforts to steer the economy towards sustainable growth and stability.
In this report, we will delve into the factors contributing to Lebanon’s remarkable achievement of a PMI index of 50.3 in July 2023. By examining the impact of the summer season, the reopening of businesses, and the improved employment prospects, we aim to shed light on the resilience and potential of Lebanon’s economy in the face of political instability.
The activity at Rafic Hariri International Airport improved during the first half of 2023 compared to the same period last year. In fact, the number of Beirut’s International airport passengers added 23.29% on annual basis and recorded 3,165,871 passengers by June 2023. The breakdown of the airport’s statistics revealed that total arrivals jumped by 25.04% year-on-year (YOY) to stand at 1,631,358 by June 2023 compared to 1,304,649 by June 2022. Meanwhile number of departing passengers climbed by a yearly 22.40% to reach 1,527,132 by June 2023, compared to 1,247,684 by June 2022. Nevertheless, transit passengers dropped from 15,539 by June 2022 to 7,381 transit passengers by June 2023. On a monthly basis, the activity at Rafic Hariri International Airport improved in June 2023 with total passengers rising remarkably by 28.05% compared to the month of May. In fact, arrivals skyrocketed by 54.07% while departures rose only by 1.96% in June. It is interesting to see Beirut Airport arrivals surpassing departures as this reflects remarkable changes in travel patterns certainly driven by crowded tourism period.
The latest statistics on activity at the Port of Beirut showed that container activity recorded an annual increase of 14.18% by the month of May 2023. Overall, Total container activity including transshipment (TEU+TS) increased by a yearly 14.18% to stand at 317,034 twenty-foot equivalent unit (TEU) by the first five month of 2023, with transshipment activity (TS) adding 80.53% YOY to 97,490 TEU, while container activity (TEU) dropped by 1.84% on a yearly basis to 219,542 TEU by May 2023. On a monthly basis, total container activity added 30.74% to stand at 73,606 twenty-foot equivalent units (TEU), while container activity (TEU) added 11.37% for the month of May 2023 compared to same month last year to reach 50,800 TEU. Meanwhile, transshipment activity (TS) grew by 113.40% to 22,806 TEU for the month of May 2023, compared to 10,687 TEU in May 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 remained near historically high level at 253.55% in June 2023, driven by crowded tourism season which pushed prices up, higher customs dollar rate as well as dollarizing of most of day to day expenses. 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 207.69% by June 2023. Also, “Owner-occupied” rental costs increased by 279.30% year-on-year (YOY) and the prices of “water, electricity, gas, and other fuels” followed a significant increase by 149.04% YOY. Looking at the prices of “Food and non-alcoholic beverages” (20% of CPI), it surged by 279.54% 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 217.84% and 284.27% respectively by June 2023. Also, “Restaurant and Hotels” (2.8% of CPI) increased yearly by 340.47% by June 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 end of July 2023, the central bank’s total assets fell by 39.15% compared to last year, to reach $103.09B. The fall was mainly due to the 90.52% year-on-year (YOY) drop in other assets, grasping 6.48% of BDL’s total assets and reaching $6.67B by end of July 2023. Furthermore, the gold account, representing 17.50% of BDL’s total assets, increased by 10.89% yearly to reach $18.03B by end of July 2023. BDL’s foreign assets, consisting of 13.37% of total assets dropped by 9.11% YOY and stood at $13.78B by end of July 2023, noting that BDL holds in its foreign assets $5B in Lebanese Eurobonds. In parallel, other liabilities plunged by 72.61% year over year and 54.82% on a monthly basis to stand at $1.10B by the end of July 2023. Interesting to mention that the capital account of BDL has remarkably increased by 25.73% on a monthly basis to stand at $899.11M by the end of July noting that it almost remained constant during the last two years except February 2023 at the time of official rate’s modification. Meanwhile, total volume of dollars on Sayrafa platform reached around $810M in the second two weeks of July 2023; crucially however, BDL’s foreign assets decreased by $608.38M during the same period which raises questions about the situation since foreign reserves were expected to increase due to tourism and expats’ cash inflows during summer season.
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 1,013,924 checks by June 2022 to 264,443 checks by June 2023. Moreover, the cumulative value of cleared checks in local currency increased remarkably from LBP 16,583 B by June 2022 to LBP 29,514 B by June 2023. This upsurge is driven by a significant increase in value of Lebanese checks which could reflect a larger percentage of discounting Lebanese checks in the market. Meanwhile, the cumulative value of cleared checks in foreign currency fell from $5,878M by June 2022 to $2,173M by June 2023. Moreover, the volumes of cleared checks in Lebanese Pounds and foreign currencies witnessed significant yearly drops of 62.40% and 86.31% respectively to settle at 197,544 and 66,899 checks, by June 2023. Accordingly, the dollarization rate of checks in terms of volume fell from 48.18% in June 2022 to 25.30% in June 2023. Moreover, the number of returned checks fell substantially by 66.86% YOY to stand at 2,319 checks. Moreover, the value of returned checks in foreign currency increased by 91.89% by June 2023 to reach $142M, additionally the value of returned checks in local currency increased remarkably by 336.04% YOY to reach LBP 484B by June 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 the data from the Orders of Engineers in Beirut and Tripoli, the total construction permits witnessed a year-on-year (YOY) remarkable decrease of 51.05% to reach 5,061 permits by half 2023. Similarly, the Construction Area Authorized by Permits (CAP) plunged by an annual 63.44% to 2,038,409 square meters (sqm), mainly driven by public institution’s strike, decline of interests towards investing in real tangible assets and overall lower income. Compared to the same period last year, construction activity witnessed a significant decrease regionally. Across the governorates, Mount Lebanon, grasped 38.79% of the total permits, and accounted for 1,963 permits by end of June 2023 compared to 4,138 previous years. However, for the South, it constituted 28.16% of the total permits, its respective number of permits reached 1,425 permits compared to 2,955 permits same period last year. In Nabatieh which holds 18.63% of the total permits, its share accounted for 943 by June 2023. In Bekaa, 455 construction permits were issued by half of 2023 down from 914 in the same period last year, while in Beirut only 151 construction permits were issued by June 2023. The decrease is more remarkable given the lack of bank lending. Overall, the number of construction permits is largely considered a macroeconomic indicator as it typically increases in time of economic expansion. However, it is not the case for Lebanon as we can certainly admit the existence of better economic circumstances currently, unless its effect takes place with a lag.
According to BDL’s latest monetary report, the BOP recorded a surplus of $1.23B by May 2023, far exceeding the deficit over the same period last year of $2.1B. Accordingly, Net foreign Assets (NFAs) of BDL fell by $778.2M, as BDL has continued to make some intervention on Forex market through the “Sayrafa” platform while the NFAs of commercial banks rose by $2B by May 2023.
According to Lebanon’s consolidated commercial banks’ balance sheet, total assets decreased annually by 33.38% to stand at $115.21B by May 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 74.6% of total assets; they dropped annually by 24.76% to settle at $85.96B in May 2023. Deposits with the central bank (BDL) represented 98.52% of total reserves, and decreased by 23.3% YOY, to reach $84.68B in May 2023. Furthermore, Vault cash in Lebanese pound fell by 66.8% on a yearly basis to stand at $1272M by the same period. The drop is attributed to the calculation based on the new official exchange rate of LBP 15000 per USD. Moreover, claims on resident customers, constituting 7.21% of total assets, shrank significantly by 61.9%, to stand at $8.31B in May 2023. Moreover, Resident Securities portfolio (6.07% of total assets) dropped by 59.8% in May 2023 to stand at $6.99B. More specifically, the Eurobond holding recorded a decline of 34.54% since May 2022, to reach $2.77B by end of May 2023. Additionally, claims on non-resident financial sector increased by 10.26% YOY to stand at $4.22B by May 2023.
In conclusion, BLOM Lebanon PMI registered signs of expansion at a higher pace with the headline PMI index posting 50.3 in July, up from 50.2 in June and 49.4 in May. Indeed, amidst the economic turmoil faced by the country, Lebanon’s private sector has displayed remarkable resilience. However, it is important not to mistake this resilience as a substitute for necessary reforms. While the private sector’s tenacity is commendable, it alone cannot fully resolve the intricate economic crisis in Lebanon, especially that there is increased uncertainty as the Lebanese central bank governor’s Riad Salameh’s 30-year term will conclude on July 31, and there is no successor in line. For sustainable growth and to attract both domestic and foreign investments, undertaking structural reforms, ensuring transparent governance, and fostering a supportive business environment are imperative. Lebanon’s government, policymakers, and institutions must come together in a collaborative effort to address the underlying causes of the crisis. By implementing measures that promote stability, strengthen institutions, and improve the business climate, Lebanon can take significant strides towards overcoming its economic challenges and building a more prosperous future.