Lebanon’s Purchasing Managers’ Index (PMI) experienced the sharpest drop in seven months, falling from 50.3 in July to 48.7 in August 2023. This alarming drop was primarily attributed to the substantial decline in output, new orders, and employment within the country. Crucially, however, Lebanon’s PMI had remained above the critical 50 threshold in the preceding two months of June and July; nevertheless, this stability was partially upheld by the country’s heavy reliance on tourism activity and expatriate expenditure but the situation took a concerning turn in August 2023 as further complications challenged the private sector.
Above all, Lebanon is still facing political stagnation especially as for the presidential elections. The nation has been without a president since October 2022 even with the highly divided parliament has convened more than 10 times to elect a successor to former Head of State Michel aoun, yet failed till today to reach consensus on a candidate’s name. In addition, Lebanon underwent a new crisis in August that seems to be one of the most alarming and concerning crises yet — the Governance crisis of the Central Bank of Lebanon. As such, the Central Bank of Lebanon’s first deputy governor Wassim Mansouri became the Central Bank’s acting Governor on July 31, after Riad Salemeh concluded his term as BDL Governor by end of July, promising major reforms, including ending unauthorized Central Bank financing of the Government.
While the absence of substantial economic reforms continued to cast a shadow over the country’s economic prospects, a glimpse of hope had loomed recently primarily attributed to the positive developments surrounding Lebanon’s gas exploration endeavors. Certainly, this positive shift reflected optimistic environment. However, it’s important to recognize that the impact on the economic and financial sector is also contingent on various other factors, such as geopolitical stability, successful project execution, and broader economic reforms and its sustained improvement will depend on Lebanon’s ability to effectively capitalize on the opportunities presented by the gas sector and address its ongoing challenges.
Also happening last month, a recent forensic report by Alvarez & Marsal has unveiled serious issues within Lebanon’s central bank, Banque du Liban. The report, spanning from 2015 to early 2020 and consisting of 332 pages, exposes illegal and problematic practices within the bank. These practices included complex financial engineering, mismanagement, and illicit behavior. The report highlighted that despite having a foreign currency surplus of $7.2 billion in 2015; Banque du Liban ended 2020 with a deficit of $50.7 billion. This rapid financial decline was masked by unconventional accounting standards, allowing the bank to inflate the value of its assets and profits. Significant losses were hidden off the balance sheet under different categories, making it appear as though there were no losses on the balance sheet. Additionally, the central bank heavily relied on seigniorage, but this practice lacked transparency and adequate disclosure, providing a misleading representation of the bank’s financial health. Information such as profit and loss accounts, interest payments to major depositors or borrowers, and reporting methodologies were not made public. The report faced obstacles and resistance from key policymakers during its investigation.
The report also exposed practices that were behind Lebanon’s ongoing economic crisis, citing questionable financial practices, a lack of transparency, and inadequate oversight as key contributors. The central bank’s mismanagement, as emphasized in the report, has significantly worsened the devaluation of the national currency, soaring deficits, and rising inflation. The release of the preliminary forensic report has prompted political and civil movements to demand urgent action to address the systemic issues within Lebanon’s central bank. The IMF has emphasized the importance of addressing these concerns to rebuild trust in Lebanon’s financial system and pave the way for economic recovery.
On a different note, the Lebanese national currency remained steady this week with almost same average as previous week of 89,480 LBP/USD. The pair LBP/USD recorded a minimum of 89,400 LBP/USD and a maximum of 89,600 LBP/USD during the course of this week. Despite the Lebanese parallel market rate remaining steady, a significant level of uncertainty lingers, particularly due to the country’s political situation and the governance of the Central Bank drawing increased attention.
The activity at Rafic Hariri International Airport improved in the seventh month of 2023 compared to the same month last year. In fact, the number of Beirut’s International airport passengers added 20.67% on annual basis and recorded 4,090,402 passengers by July 2023.The breakdown of the airport’s statistics revealed that total arrivals jumped by 21% year-on-year (YOY) to stand at 2,135,210 by July 2023 compared to 1,764,667 by July 2022. Meanwhile number of departing passengers climbed by a yearly 21.21% to reach 1,946,786 by July 2023, compared to 1,066,160 by July 2022. Nevertheless, transit passengers dropped from 18,926 by July 2022 to 8,406 transit passengers by July 2023. On a monthly basis, the activity at Rafic Hariri International Airport improved in July 2023 with total passengers rose remarkably by 30.66% compared to the month of June. In fact, arrivals increased by 17.76% and departures rose by 50.66% in July.
The latest statistics on activity at the Port of Beirut showed that Container Activity up 16.81% by June 2023. Overall, Total container activity including transshipment (TEU+TS) increased by a yearly 16.81% to stand at 391,894 twenty-foot equivalent unit (TEU) for the month of June 2023, with transshipment activity (TS) adding 88.59% YOY to 126,244 TEU, while container activity (TEU) dropped by 2.65% on a yearly basis to 265,648 TEU by June 2023. On a monthly basis, total container activity added 29.42% to stand at 74,860 twenty-foot equivalent units (TEU), while container activity (TEU) dropped by 6.34% for the month of June 2023 compared to same month last year to reach 46,106 TEU. Meanwhile, transshipment activity (TS) grew by 122.26% to 28,754 TEU for the month of June 2023, compared to 12,937 TEU in June 2022. In more details, the transshipment volume of CMA CGM, one of the two major shipping lines operating at the Port of Beirut, increased annually by 94.37% to stand at 94,264 TEU by June 2023. Similarly, transshipment volume of MSC, the other major line, added 36.51% YOY to 9,819 TEU by the same month. Furthermore, the local volume of CMA CGM dropped by 5.91% to reach 78,853 TEU, and local volume of MSC fell by 4.04% to stand at 63,728 TEU by the month of June 2023.
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 251.53% in July 2023. Certainly, inflation has maintained historically elevated levels due to the predominant surge in tourism during the peak season, resulting in escalated prices. Additionally, the increased customs dollar rate and the widespread adoption of dollarization for everyday expenditures in Lebanon have further contributed to maintain this upward trend in prices. 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 233.81% by July 2023. Also, “Owner-occupied” rental costs increased by 322.74% year-on-year (YOY) and the prices of “water, electricity, gas, and other fuels” followed a significant increase by 161.24% YOY. Looking at the prices of “Food and non-alcoholic beverages” (20% of CPI), it surged by 278.50% 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 222.34% and 257.31% respectively by July 2023. Also, “Restaurant and Hotels” (2.8% of CPI) increased yearly by 301.87% by July 2023.
Furthermore, according to the customs Administration, Lebanon’s trade deficit in August 2023 totaled $8.32B down from $10.36B during the same period last year. Total imported goods dropped by 16.27% year-on-year (YOY) to $10.69B while total exports slightly decreased by 1.46% YOY to stand at $2.38B by August 2023. In details, the “Mineral products” grasped the lion’s share of total imported goods with a stake of 27.49%. “Pearls, precious stones and metals” ranked second, composing 13.98% of the total while “Machinery; electrical instruments” and “Vehicles, aircraft, vessels, transport equipment” grasped the respective shares of 10.27% and 6.15%, respectively. On an annual basis, the value of imported “Mineral products” dropped by 19.55%, from $3.66B to $2.94B by August 2023. Furthermore, the value of imported “Vehicles, aircraft, vessels, transport equipment” dropped significantly by 52.64% from $1.39B to $0.66B by August 2023. On the Exports front, Lebanon’s top exported products were “Pearls, precious stones and metals” grasping a share of 17.33% of the total. “Machinery electrical instruments” and “Base metals and articles of base metal” followed, with each grasping a share of 15.36% and 11.27%, respectively, of the total. The top two export destinations in August 2023 were UAE and Turkey with the respective shares of 14.45% and 9.08%.
According to the balance sheet of Banque du Liban (BDL), the central bank’s total assets fell by 39.46% compared to last year, to reach $103.57B by mid of August 2023. The fall was mainly due to the 90.56% year-on-year (YOY) drop in other assets, grasping 6.57% of BDL’s total assets and reaching $6.80B by mid of August 2023. Furthermore, the gold account, representing 17.04% of BDL’s total assets, increased by 7.07% yearly to reach $17.64B by mid of August 2023. BDL’s foreign assets, consisting of 13.36% of total assets dropped by 8.58% YOY and stood at $13.84B by mid of August 2023 of which liquid foreign reserve assets totaled $8.64B ($8,57B as at 31/07/2023), noting that BDL holds in its foreign assets $5.2B in Lebanese Eurobonds. Interesting to note, BDL is currently working on changing the accounting policy in line with international practices. Meanwhile, by August 2023, the platform “Sayrafa” has been officially decommissioned after Governor Riad Salameh ended his 30 years tenure by end of July. On the liabilities front, financial sector deposits, representing 86.06% of BDL’s total liabilities, decreased by 19.54% and reached $89.14B by mid of August 2023 compared to last year, of which more than 90% are denominated in dollars. Lastly, currency in Circulation outside of BDL, consisting of 3.97% of BDL’s total liabilities, plunged by 85.79% annually to reach $4.11B by mid of August 2023, amid adopting the 15,000 LBP/USD official rate by BDL starting 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 1,123,318 checks by July 2022 to 298,043 checks by July 2023. Moreover, the cumulative value of cleared checks in local currency increased remarkably from LBP 19,142B by July 2022 to LBP 36,174B by July 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 $6,649M by July 2022 to $2,402M by July 2023. Moreover, the volumes of cleared checks in Lebanese Pounds and foreign currencies witnessed significant yearly drops of 61.6% and 86.43% respectively to settle at 225,145 and 72,898 checks, by July 2023. Accordingly, the dollarization rate of checks in terms of volume fell from 47.81% in July 2022 to 24.46% in July 2023.
On a different note, BDL has released a new circular number 165, allowing depositors to pay by check from their account, effectively June 1st, provided the account is in fresh US dollars or Lebanese lira. To facilitate these transactions, BDL established a new clearing system, separate from the existing one reserved for deposits held in the bank before the crisis. Indeed, the circular serves on one hand, to encourage customers to open new accounts in both Lebanese pound and US dollars and on the other hand, to reduce reliance on cash in the country and revive the economy. As such, in July 2023, a total number of 33 checks were issued from fresh accounts, of which 5 checks are in USD currency amounting $25,506 and 28 checks are in LBP currency amounting LBP 7B. Nonetheless, 3 USD checks were returned amounting $3,760.
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 47.33% to reach 5,973 permits by July 2023. Similarly, the Construction Area Authorized by Permits (CAP) plunged by an annual 59.3% to 2,408,582 square meters (sqm), mainly driven by public institution’s strike, decline of interests towards investing in real tangible assets and less overall income. Construction activity witnessed a significant decrease regionally compared to the same period last year. Across the governorates, Mount Lebanon, grasped 38.05% of the total permits, and accounted for 2,273 permits by end of July 2023 compared to 4,555 previous years. However, for the South, it constituted 28.04% of the total permits, its respective number of permits reached 1,675 permits compared to 3,247 permits same period last year. In Nabatieh which holds 19.66% of the total permits, its share accounted for 1,174 by July 2023. In Bekaa, 530 construction permits were issued by july 2023 down from 1,006 in the same period last year, while in Beirut only 179 construction permits were issued by July 2023. The decrease is more notable given the lack of bank lending.
According to BDL’s latest monetary report, the BOP recorded a surplus of $1.14B by June 2023, far exceeding the deficit over the same period last year of $2.57B. Accordingly, Net foreign Assets (NFAs) of BDL fell by $934.2M, as BDL has continued to make some intervention on the Forex market through “Sayrafa” platform while the NFAs of commercial banks rose by $2.07B by June 2023.
According to Lebanon’s consolidated commercial banks’ balance sheet, total assets decreased annually by 31.88% to stand at $116.43B by June 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 74.08% of total assets; they dropped annually by 23.6% to settle at $86.25B in June 2023. Deposits with the central bank (BDL) represented 98.83% of total reserves, and decreased by 22.53% YOY, to reach $85.24B in June 2023. Furthermore, Vault cash in Lebanese pound fell by 64.71% on a yearly basis to stand at $1,010M by the same period. The drop is attributed to the calculation based on the new official exchange rate of LBP 15000 per USD. Claims on resident customers, constituting 6.94% of total assets, shrank significantly by 61.99%, to stand at $8.08B in June 2023. Moreover, Resident Securities portfolio (6.85% of total assets) dropped by 52.63% in June 2023 to stand at $7.97B. More specifically, the Eurobond holding recorded a decline of 30.20% since June 2022, to reach $2.79B by end of June 2023. Additionally, claims on non-resident financial sector increased by 12.93% YOY to stand at $4.37B by June 2023.
In conclusion, BLOM Lebanon PMI witnessed accelerated deterioration, as the headline PMI index recorded 48.7 in August 2023, down from 50.3 in July and 50.2 in June. Indeed, the uncertainty surrounding the status of the governor at BDL adds to the economic challenges. As Lebanon grapples with these turbulent circumstances, the absence of substantial economic reforms remains a significant issue, casting a shadow over the nation’s future. Without meaningful changes, Lebanon’s economic trajectory remains uncertain, highlighting the urgent need for impactful reforms to pave the way for a more promising economic outlook.
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