The month of September brought some breakthroughs for the economic situation of the country mainly due to the steady exchange rates that eased inflationary pressures. However, the economic environment remained challenging for both residents and businesses, as the cost of living continues to rise, impacting the purchasing power of the Lebanese population. In fact, addressing the inflationary pressures has become a pressing concern for economic stakeholders, but policymakers in Lebanon are not taking any measures to stabilize the economy and mitigate the adverse effects of this prolonged inflationary period.
Most notably, Lebanon continues to grapple with political deadlock, particularly concerning the presidential elections. Since President Michel Aoun’s departure in October 2022, Lebanon has been unable to select a new president with Lebanon’s Parliament convened 12 sessions to elect a new president, but a consensus candidate remains elusive. After France’s attempt to resolve the matter, Qatar has recently stepped in to facilitate negotiations among Lebanon’s political factions with Jassim bin Fahad Al-Thani, a Qatari envoy, arriving in Lebanon to foster understanding among these rivals. In addition, Qatar’s Minister of State is scheduled to visit Lebanon in October to continue efforts to resolve the political standoff. Hopefully, Lebanon would see some prospects regarding its ongoing paralyzed political situation.
On a different note, the Lebanese national currency remained steady this month with almost the same average as previous ones at 89,565 LBP/USD. The pair LBP/USD recorded a minimum of 89,300 LBP/USD and a maximum of 89,800 LBP/USD during the course of this month. Although the Lebanese parallel market rate is stable, a major uncertainty remains present regarding the Lebanese exchange rate, mostly due to the country’s political situation and the recent announcement of the Central Bank’s plan to replace its exchange rate platform Sayrafa with Bloomberg. In fact, the central bank’s vice governors presented this proposal to parliamentarians, aiming to adopt a “managed floating” system that reflects the pound’s actual value. The main objective of utilizing the Bloomberg platform presently is to stabilize the market for the US dollar, enabling the central bank to conduct its operations, reducing liquidity of the Lebanese pound market arbitrage. However, the effectiveness of the Bloomberg platform in liberalizing exchange rates could be uncertain. The primary concern now is whether Lebanon’s economy and its black-market forces can support a floating exchange rate system and the availability of forex for items like fuel, medicines, and food that were previously provided by the Sayrafa platform.
Also in September, an International Monetary Fund (IMF) team visited Beirut from September 11 to 14 and discussed recent economic developments and progress on key reforms. At the end of the mission, the team stated that Lebanon’s failure to implement necessary reforms is causing long-term economic challenges. The lack of political determination to make tough decisions has led to problems like a troubled banking sector, inadequate public services, worsening infrastructure, increasing poverty and unemployment rates, and a growing income inequality gap. In addition, inflation is soaring, squeezing real incomes, and foreign exchange reserves are dwindling due to the central banks financing of non-standard fiscal activities and a substantial current account deficit. Moreover, the seasonal uptick in tourism has increased foreign currency’ inflows over the summer months. While this is unlikely to persist, it gives the impression that the economy has bottomed out of the crisis and is leading to complacency. However, receipts from tourism and remittances fall far short of what is needed to offset a large trade deficit and lack of external financing. The current trajectory of the external balance is unsustainable and underscores the urgency of the situation. In other terms, IMF stated that more needs to be done.
The activity at Rafic Hariri International Airport recorded a significant improvement by August 2023 compared to the same period last year. In fact, the number of Beirut’s International airport passengers added 19.61% on annual basis and recorded 5,004,666 passengers by August 2023.The breakdown of the airport’s statistics revealed that total arrivals jumped by 20.69% year-on-year (YOY) to stand at 2,514,324 by August 2023 compared to 2,083,301 by August 2022. Meanwhile number of departing passengers climbed by a yearly 19.41% to reach 2,480,677 by August 2023, compared to 2,077,509 by August 2022. Nevertheless, transit passengers dropped from 58.72 by August 2022 to 9,665 transit passengers by August 2023.On a monthly basis, the activity at Rafic Hariri International Airport retreated in August 2023 with total passengers down by 1.11% compared to the month of July. In fact, arrivals decreased by 24.76% while departures rose by 27.22% in August.
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.
Nevertheless, inflation has been persistently elevated though it slightly came lower in August compared to July 2023; however, it remains driven by overall high prices across various sectors given the fact of the adoption of dollarization for everyday expenditures and the increased customs dollar rate that played a pivotal role in sustaining this upward trend in prices. According to the Central Administration of Statistics (CAS), the Consumer Price Index (CPI), representing the evolution of goods and services’ prices consumed by households, revealed that Lebanon’s inflation rate registered another high level of 229.85%. 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 232.84% by August 2023. Also, “Owner-occupied” rental costs increased by 322.02% year-on-year (YOY) and the prices of “water, electricity, gas, and other fuels” followed a significant increase by 155.42% YOY. Looking at the prices of “Food and non-alcoholic beverages” (20% of CPI), it surged by 274.24% 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 230.78% and 235.08% respectively by August 2023. Also, “Restaurant and Hotels” (2.8% of CPI) increased yearly by 269.33% by August 2023. In the same token, costs of “Clothing and Footwear” (5.2% of CPI) surged by 249.30% by August 2023, and the prices of “Communication” (4.5% of the CPI) increased by 135.24%. Finally, prices of “Furnishings and household equipment” (3.8% of CPI), “Alcoholic beverages and tobacco” (1.4% of CPI), and “Recreation, amusement, and culture” (2.4% of the CPI) increased by 212.56%, 359.36%, and 154.74%, respectively, by August 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 38.20% compared to last year, to reach $104.69B by mid of September 2023. The fall was mainly due to the 90.44% year-on-year (YOY) drop in other assets, grasping 6.63% of BDL’s total assets and reaching $6.B by mid of September 2023. Furthermore, the gold account, representing 16.90% of BDL’s total assets, increased by 13.61% yearly to reach $17.68B by mid of September 2023. BDL’s foreign assets, consisting of 13.31% of total assets dropped by 4.68% YOY and stood at $13.93B by mid of September 2023 of which liquid foreign reserve assets totaled $8.727B ($8.573B as at 31/07/2023), noting that BDL holds in its foreign assets $5.2B in Lebanese Eurobonds. In parallel, interestingly, other liabilities plunged by 74.49% years over year to stand at $1.11B by mid of September 2023. On the liabilities front, financial sector deposits, representing 84.81% of BDL’s total liabilities, decreased by 17.62% and reached $88.78B by mid of September 2023 compared to last year, of which more than 90% are denominated in dollars. Lastly, currency in Circulation outside of BDL, consisting of 3.90% of BDL’s total liabilities, plunged by 86.37% annually to reach $4.07B by mid of September 2023 amid adopting the 15,000 LBP/USD official rates by BDL.
Interesting to note, a statement issued on 18/9/2023 by Acting BDL Governor, Dr Wassim Mansouri, claimed that BDL liquid FX reserve assets stood at $8.498B at end August 2023, down from $8.573B declared previously in July 2023, with current accounts stood at $3.238B up from $3.114B at 31/07/2023, time accounts reached $3.490B while financial securities added 10.09% to $240M by end of August 2023. Furthermore, BDL stated that the Eurobonds at market value were $413M in August 2023, up from $387M in July 2023. On the other flip, the statement showed that liquid FX reserve liabilities were $1.279B by August 2023, up from the $1.270B in July 2023 with SDR balance available for use dropping from $125M to $76M by end of August 2023 while Banks’ deposits in fresh dollar increased to $14M and the public sector deposits in fresh dollar expanded from $275M to $328M by end of August 2023.
Moreover, this month, the Central Bank issued on 11 September 2023, through its Acting Governor Dr Wassim Mansouri, Intermediate Circular 675 on FX Operations and Circular 676 on Consolidated Financial Accounts at Banks. The new circular aimed to suspend the application of some articles in Intermediate Circulars 675 and 676. More specifically, Intermediate Circular 677 suspended:
– Article 3 of Intermediate Circular 675 that deals with the regulatory actions that banks will be subjected to in case they don’t meet the required net FX position.
– Article 4 of Intermediate Circular 675 that deals with the maximum period allowed for banks to settle their violation of the required net FX position.
– Article 1 of Intermediate Circular 676 that deals with how banks should report the changes in their net FX position in their consolidated financial statements.
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 1,225,373 checks by August 2022 to 327,135 checks by August 2023. Moreover, the cumulative value of cleared checks in local currency increased remarkably from LBP 22,865B by August 2022 to LBP 41,237B by August 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 $7,436M by August 2022 to $2,590M by August 2023. Moreover, the volumes of cleared checks in Lebanese Pounds and foreign currencies witnessed significant yearly drops of 61.47% and 86.52% respectively to settle at 249,129 and 78,006 checks, by August 2023. Accordingly, the dollarization rate of checks in terms of volume fell from 47.24% in August 2022 to 23.85% in August 2023. Notably, the number of returned checks fell substantially by 68.14% YOY to stand at 2,702 checks. Moreover, the value of returned checks in foreign currency increased by 46.52% by August 2023 to reach $148M, additionally the value of returned checks in local currency increased remarkably by 228.57% YOY to reach LBP 506B by August 2023.
Banque du Liban (BDL) recently issued Circular 165, which permits depositors to make payments by check starting from June 1st, 2023, as long as their accounts are in either fresh US dollars or Lebanese lira. To support this initiative, BDL has introduced a new clearing system, distinct from the one dedicated to pre-crisis deposits. This circular serves a dual purpose: it encourages customers to open new accounts in both Lebanese pounds and US dollars, while also aiming to decrease the country’s dependence on cash and stimulate economic recovery. As such, in August 2023, a total number of 177 checks were issued from fresh accounts, of which 36 checks are in USD currency amounting $1.62M and 141 checks are in LBP currency amounting LBP 221B.
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 43.02% to reach 7,067 permits by August 2023. Similarly, the Construction Area Authorized by Permits (CAP) plunged by an annual 54.14% to 2,869,932 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 36.47% of the total permits, and accounted for 2,577 permits by end of August 2023 compared to 4,930 previous years. However, for the South, it constituted 28.71% of the total permits, its respective number of permits reached 2,029 permits compared to 3,247 permits same period last year. In Nabatieh which holds 20.98% of the total permits, its share accounted for 1.483 by August 2023. In Bekaa, 611 construction permits were issued by August 2023 down from 1,122 in the same period last year, while in Beirut only 199 construction permits were issued by August 2023. The decrease is more notable given the lack of bank lending. Surprisingly, it seems the impact of construction activity is delayed and takes effect after some time as the construction permits have been on the decline for the year of 2023 while the economic conditions in Lebanon have marginally improved.
Furthermore, Real Estate Demand came lower by an annually 91.42% by Half of 2023 according to the data from the General Directorate of Land Registry and Cadastre (LRC). In more details, the number of Real estate (RE) transactions recorded a sharp fall to stand at 3,425 transactions by June 2023, compared to 39,921 transactions same period last year. The drop is mainly due to the ongoing nation-wide strike for the public employees which have led to major dysfunction for public services. In the same token, the value of total RE transactions stood at $484.56M by June 2022 calculated at the new official rate of USD/LBP 15,000, which is 87.79% lower than $5.76BB in the same period last year. On a monthly basis, the number of RE transactions stood at 871 in the month of June 2023, compared to 793 transactions in the previous month of May 2023, and to 2,620 transactions in June 2022. In details, South region holds the biggest share of real estate transactions at 405, or 46.50% of total RE transactions, in the month of June 2023, followed by Beirut at 234 transactions or 26.87% of total RE transactions. Furthermore, Nabatieh grasped 13.20% of total RE activity in June 2023 and 8.50% or 74 transactions was the share that the North grasped out of the total RE transactions while zahle held 11 transactions or 1.26%. Noting that no RE transactions was recorded in the area of Metn, Kesserwen, and Baabda for the month of June 2022. Moreover, the breakdown of RE activity by value for June 2023 showed that Beirut grasped the lion’s share of the total value of RE transactions, equivalent of 77.07% and worth $373.47M, while the South followed, constituting 16.65% of the total and worth $80.70M.
According to BDL’s latest monetary report, the BOP recorded a surplus of $925.9M by July 2023, far beyond the deficit over the same period last year of $2.78B. Hence, Net foreign Assets (NFAs) of BDL fell by $1.45B, as BDL has continued to make some intervention on the Forex market through “Sayrafa” platform while the NFAs of commercial banks rose by $2.38B by July 2023. On a monthly basis, the BOP recorded a deficit of $217.2M in July 2023, where the NFA of BDL declined by $524.8M and NFA of banks rose by $307.6M. The changes were noticeable on both sides of the commercial banks’ balance sheet; claims on non-resident financial sector increased by $84.06M, claims on non-resident customers retreated by $32.83M while currency and deposits with non-resident central banks dropped by $9.42M and other foreign assets added $108.33M in July 2023. On the liabilities side, non-resident customers deposit contracted by $3.94M and non-resident financial sector liabilities decreased by $41.49M.
According to Lebanon’s consolidated commercial banks’ balance sheet, total assets decreased annually by 31.57% to stand at $117.18B by July 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 72.46% of total assets; they dropped annually by 25.52% to settle at $84.91B in July 2023. Deposits with the central bank (BDL) represented 99.17% of total reserves, and decreased by 24.23% YOY, to reach $84.20B in July 2023. Furthermore, Vault cash in Lebanese pound fell by 75.50% on a yearly basis to stand at $706.17M 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 6.67% of total assets, shrank significantly by 62.22%, to stand at $7.81B in July 2023. Moreover, Resident Securities portfolio (6.82% of total assets) dropped by 52.25% in July 2023 to stand at $7.98B. More specifically, the Eurobond holding recorded a decline of 32.74% since July 2022, to reach $2.65B by end of July 2023. Additionally, claims on non-resident financial sector increased by 16.50% YOY to stand at $4.45B by July 2023.
On the liabilities side, resident customers’ deposits were the main account, representing 63% of total liabilities; they decreased by 28.20% since July 2022 to reach $73.82B by the month of July 2023. In more details, deposits in foreign currencies (95.46% of resident customers’ deposits) decreased by 6.73% YOY to reach $70.46B by July 2023, additionally deposits in LBP (4.54% of resident customers’ deposits) fell by 87.69% YOY to stand at $3.35B by July 2023. Noting that Lebanon has become dollarized, and cash based. As for Non-resident customers’ deposits, grasping 18.34% of total liabilities, they recorded a drop of 9.28% and stood at $21.48B in July 2023. In details, the deposits in LBP fell by 90.38% to reach $195.43M and deposits in foreign currencies declined by 1.67% to reach $21.29B over the same period. In addition, Non-resident financial sector Liabilities held 2.78% of total Liabilities and decreased by 25.37% YOY to reach $3.25B in July 2023. More importantly, the dollarization ratio for private sector deposits increased from 76.58% in July 2022 to 96.19% in July 2023.
BLOM Bank published on 8 September 2023 its consolidated but un-audited financial results for Q2 2023. The results obtained were naturally affected by the impact of the financial and economic crisis that has struck Lebanon since October 2019. Interesting to note in this context that the exchange rate against the USD that was used in the calculations was set at 15,000 LBP instead of the previous 1,507.5 LBP, as the new official exchange rate set by BDL starting 1/2/2023. As such, net profits came to $3.072 million, compared to $2.547 million in Q2 2022. In terms of balance sheet items, assets stood at $18.672 billion, lower by 27.60% from end year 2022; deposits were $16.674 billion, down by 18.39%; loans decreased to $1.067 billion, less by 37.76%; and shareholders’ equity stood at $1.300 billion, down by 58.48%. The Bank also noted that it is required to comply by all BDL circulars as stipulated in the Code of Money and Credit, especially article 208. As a result, the Bank has complied by these circulars when calculating expected credit losses in accordance with the specified ratios listed in Appendix 6 of BDL circular number 44, and as amended by the intermediate circular number 543 issued by BDL on February 3rd, 2020.
In the same token, Bank Audi published its non-audited financial results for Q2 2023 on 5/9/2023. Bank Audi’s net profit amounted to $67.51 million compared to losses of $312.12 million in Q2 2022. As to assets, they stood at $17.97 billion, less by 33.26% relative to end 2022; deposits reached $15.84 billion, down by 20.52%; loans stood at $2.48 billion, less by 37.01%; and shareholders’ equity were $1.12 billion, down by 72.07%. Bank Audi stated also that “the figures below were published to comply with regulatory publishing requirements for listed banks operating in Lebanon. They should not be relied upon for decision-making, and they should be read in conjunction with the full set of financial statements and related disclosures as published on the Bank’s website (please refer to the 2022 Annual Report and to the Interim Report as at end-June 2023)
In conclusion, BLOM Lebanon PMI recorded a modest increase, rising to 49.1 in September up from August’s 48.7. However, this figure remains below the crucial 50.0 threshold. While the uptick may suggest some stabilization, it falls short of indicating a significant improvement in the health of the Lebanese private sector economy. The persistent sub-50 reading implies that businesses in Lebanon continue to face challenges, including economic instability and uncertainty, which hinder their growth and overall performance. Addressing these underlying issues remains essential to fostering a more robust and sustainable private sector in Lebanon.
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