Lebanon’s Purchasing Managers’ Index (PMI) experienced a sharp drop in October 2023 standing at 48.9, down from the 49.1 in September 2023. While economic indicators are of paramount importance, it’s essential to contextualize these numbers within the broader regional landscape. Indeed, on October 7, 2023, a critical event unfolded when Hamas attacked Israel, intensifying concerns and tensions within Lebanon, severely impacting economic activities. As such, the restaurant industry has been severely impacted, experiencing a staggering decline of up to 80% in business, as reported by Lebanon’s syndicate for restaurants, nightclubs, and cafes. In fact, Lebanon’s tourism sector, a substantial contributor to the country’s gross domestic product (GDP) at 20%, has also taken a significant hit. The situation has deteriorated to the extent that several nations, including Canada, Australia, France, Germany, the United Kingdom, and the United States, have not only discouraged their citizens from visiting Lebanon but have also advised those already in the country to depart while commercial flight options remain available.
Moreover, on October 20, Middle East Airlines announced a reduction in its flight services due to the prevailing regional circumstances and decreased insurance coverage for aviation risks during times of conflict, and has resulted in around 80% reduction in the airline’s flight operations. Unfortunately, citizens are not only concerned that Lebanon might get involved in the war but also that the situation will prolong for months. This uncertainty leaves businesses and the broader economy in a state of limbo, leading to severe consequences for the restaurant industry, tourism, hospitality, and investment.
Despite the uncertainty about Lebanon being drawn into the Israel-Hamas war, the Lebanese pound remained surprisingly steady at LBP 89,700 against 1 USD in the month of October. It is worth noting that since the beginning of the crisis the Lebanese pound lost more than 98 percent of its value. Recently, the dollarization of the economy has significantly eased the pressure on the Lebanese pound, as the dollar has de facto replaced the national currency in most cases. In addition, many employers have reported that they have started to pay all or part of their salaries in foreign currency. Furthermore, the Lebanese pound managed to maintain its stability against the USD since there was a significant control over the money stock, meaning that the central bank managed to curb the excessive printing of currency, ensuring that there was no surplus money in circulation for speculative activities against the lira. This control over the money supply helped maintain the exchange rate.
Additionally, Lebanon continued to receive substantial inflows of USD from abroad, primarily in the form of remittances from the Lebanese diaspora and financial aid intended to support the country’s refugee population. These inflows of foreign currency provided a crucial source of stability to the Lebanese economy and bolstered the exchange rate. As such, the combination of dollarization, effective money supply management and foreign currency inflows played a pivotal role in preventing further depreciation of the Lebanese pound against the USD in October 2023. Nonetheless, it should be noted that the lira rate is stabilized but not stable, as this stability is not steady and is not backed by strong fundamentals.
Finally, October 31 marks a significant milestone, as it has been one year since Lebanon has been without a president. This ongoing political vacuum adds another layer of complexity to the country’s current situation, which we will also explore in this report.
On the economic front, the activity at Rafic Hariri International Airport recorded a significant improvement by September 2023 compared to the same period last year. In fact, the number of Beirut’s International airport passengers added 19.59% on annual basis and recorded 5,781,079 passengers by September 2023. The breakdown of the airport’s statistics revealed that total arrivals jumped by 20.88% year-on-year (YOY) to stand at 2,855,566 by September 2023 compared to 2,362,230 by September 2022. Meanwhile number of departing passengers climbed by a yearly 19.2% to reach 2,914,931 by September 2023, compared to 2,445,501 by September 2022. Nevertheless, transit passengers dropped from 26,298 by September 2022 to 10,582 transit passengers by September 2023. On a monthly basis, the activity at Rafic Hariri International Airport retreated in September 2023 with total passengers down by 15.08% compared to the month of August. In fact, arrivals decreased by 9.99% and departures dropped by 18.66% in September.
The latest statistics on activity at the Port of Beirut showed that container activity was up by 19.79% by July 2023. Overall, total container activity including transshipment (TEU+TS) increased by a yearly 19.79% to stand at 473,328 twenty-foot equivalent unit (TEU) for the month of July 2023, with transshipment activity (TS) adding 110.55% YOY to 164,056 TEU, while container activity (TEU) dropped by 3.82% on a yearly basis to 309,270 TEU by July 2023. On a monthly basis, total container activity added 36.53% to stand at 81,434 twenty-foot equivalent units (TEU), while container activity (TEU) dropped by 10.37% for the month of July 2023 compared to same month last year to reach 43,622 TEU. Meanwhile, transshipment activity (TS) grew by 244.47% to 37,812 TEU for the month of July 2023, compared to 10,977 TEU in July 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 89.07% to stand at 108,762 TEU by July 2023. Similarly, transshipment volume of MSC, the other major line, added 244.54% YOY to 29,117 TEU by the same month. Furthermore, the local volume of CMA CGM dropped by 5.73% to reach 93,285 TEU, and local volume of MSC fell by 20.02% to stand at 64,733 TEU by the month of July 2023.
Nevertheless, inflation in September 2023 remains notably high standing at 208.5%. It is worth noting that despite this persistent elevation in inflation, there appears to be a decreasing trend since April 2023 when it peaked at 268.78%. Nonetheless, this inflationary trend persists due to elevated prices across multiple sectors, primarily attributed to the significant increase of the custom dollar rate and higher international 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 229.63% by September 2023. Also, “Owner-occupied” rental costs increased by 324.04% year-on-year (YOY) and the prices of “water, electricity, gas, and other fuels” followed a significant increase by 147.87% YOY. Looking at the prices of “Food and non-alcoholic beverages” (20% of CPI), it surged by 239.05% 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 176.03% and 215.83% respectively by September 2023. Also, “Restaurant and Hotels” (2.8% of CPI) increased yearly by 235.07% by September 2023. In the same token, costs of “Clothing and Footwear” (5.2% of CPI) surged by 234.99% by September 2023, and the prices of “Communication” (4.5% of the CPI) increased by 120.92%. 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 188.3%, 234.99%, and 162.27%, respectively, by September 2023.
It is worth noting that, overall, since September 2019 Lebanon’s economic landscape has been marked by severe turbulence, primarily driven by skyrocketing inflation and a staggering devaluation of the Lebanese pound against the US dollar. In September 2019, the Consumer Price Index (CPI) stood at a modest 108.85, but by the time we reached September 2023, that number had soared to an alarming 4,971.28. This four-year span witnessed a concerning inflation surge, accumulating at an astonishing rate of approximately 4,467%.
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 42.89% compared to last year, to reach $105.52B by mid-October 2023, amid adopting the 15,000 LBP/USD official rate by BDL. The fall was mainly due to the 91.93% year-on-year (YOY) drop in other assets, grasping 6.785% of BDL’s total assets and reaching $7.15B by mid-October 2023. Furthermore, the gold account, representing 16.46% of BDL’s total assets, increased by 13.44% yearly to reach $17.37B by mid-October 2023. Furthermore, BDL’s foreign assets, consisting of 13.26% of total assets dropped by 6.96% YOY and stood at $13.99B by mid-October 2023, noting that BDL holds in its foreign assets $5B in Lebanese Eurobonds. On the liabilities front, financial sector deposits, representing 84.23% of BDL’s total liabilities, decreased by 16.89% and reached $88.88B by mid-October 2023 compared to last year, of which more than 90% are denominated in dollars. Lastly, currency in Circulation outside of BDL, consisting of 3.85% of BDL’s total liabilities, plunged by 91.22% annually to reach $4.06B by mid-October 2023 amid adopting the 15,000 LBP/USD official rate by BDL.
According to Ernst & Young Middle East hotel benchmark survey, the occupancy rate in Beirut’s 4- and 5-star hotels reached 45.2% percentage points (pp) by July 2023, down from last year’s percentage of 49.4%. It is important to acknowledge that the occupancy rate in Beirut 4 and 5- stars hotels experienced a decline in July 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. In more details, the average room rate in dollars currency in Lebanon rose substantially by 98.1% to stand at $133, additionnally the RevPAR increased by 81.2% to reach $60 for the month of July 2023. Moreover, the average room rate in Lebanese pound has increased significantly by 491.3% ; in details, the average room rate in LBP reached LBP 11,968,281 in July 2023 and RevPAR (Revenue per available room) jumped by 440.8% from LBP 1,000,000 in July 2022 to LBP 5,407,000 in July 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 1,306,237 checks by September 2022 to 353,183 checks by September 2023. Moreover, the cumulative value of cleared checks in local currency increased remarkably from LBP 25,682B by September 2022 to LBP 45,699B by September 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 $8,003M by September 2022 to $2,848M by September 2023. Moreover, the volumes of cleared checks in Lebanese Pounds and foreign currencies witnessed significant yearly drops of 61.20% and 82.34% respectively to settle at 270,839 and 82,344 checks, by September 2023. Accordingly, the dollarization rate of checks in terms of volume fell from 46.56% in September 2022 to 23.31% in September 2023. Notably, the number of returned checks fell substantially by 67.66% YOY to stand at 2,916 checks. Moreover, the value of returned checks in foreign currency increased by 61.11% by September 2023 to reach $174M, additionally the value of returned checks in local currency increased remarkably by 277.14% YOY to reach LBP 660B by September 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, by September 2023, a total number of 464 checks were issued from fresh accounts, of which 128 checks are in USD currency amounting $2.53M and 336 checks are in LBP currency amounting LBP 501B. However, in September stand alone, number of checks issued from fresh accounts in dollar stood at 87 checks totaling $883.13M while number of checks issued from fresh accounts in LBP reached 167 checks amounting LBP 273B.
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 $1.07B by August 2023, far beyond the deficit over the same period last year of $3.10B. Accordingly, Net foreign Assets (NFAs) of BDL fell by $1.34B while the NFAs of commercial banks rose by $2.41B by August 2023. On a monthly basis, the BOP recorded a surplus of $145.1M in August 2023, where the NFA of BDL increased by $115M and NFA of banks rose by $30.1M. The changes were noticeable on both sides of the commercial banks’ balance sheet; claims on non-resident financial sector decreased by $55.88M and claims on non-resident customers retreated by $22.02M; while deposits with non-resident central banks increased by $24.09M whereas other foreign assets dropped by $144.61M in August 2023. On the liabilities side, non-resident customers deposit contracted by $135.55M and non-resident financial sector liabilities decreased by $143.92M while non-resident debt securities issued slightly increased by 1.59M in August 2023.
According to Lebanon’s consolidated commercial banks’ balance sheet, total assets decreased annually by 32.61% to stand at $113.72B by August 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 74.39% of total assets; they dropped annually by 24.16% to settle at $84.59B in August 2023. Deposits with the central bank (BDL) represented 99.16% of total reserves, and decreased by 22.51% YOY, to reach $83.88B in August 2023. Furthermore, Vault cash in Lebanese pound fell by 78.32% on a yearly basis to stand at $713.23M 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 6.78% of total assets, shrank significantly by 61.95%, to stand at $7.7B in August 2023. Moreover, Resident Securities portfolio (6.98% of total assets) dropped by 52.09% in August 2023 to stand at $7.94B. More specifically, the Eurobond holding recorded a decline of 31.93% since August 2022, to reach $2.66B by end of August 2023. Additionally, claims on non-resident financial sector increased by 10.26% YOY to stand at $4.4B by August 2023.
On the liabilities side, resident customers’ deposits were the main account, representing 64.34% of total liabilities; they decreased by 26.9% since August 2022 to reach $73.17B by the month of August 2023. In more details, deposits in foreign currencies (95.88% of resident customers’ deposits) decreased by 7.11% YOY to reach $70.16B by August 2023, additionally deposits in LBP (4.12% of resident customers’ deposits) fell by 87.73% YOY to stand at $3.01B by August 2023. Noting that Lebanon has become dollarized and cash based. As for Non-resident customers’ deposits, grasping 18.77% of total liabilities, they recorded a drop of 9.62% and stood at $21.35B in August 2023. In details, the deposits in LBP fell by 90.41% to reach $192.16M and deposits in foreign currencies declined by 2.13% to reach $21.16B over the same period. In addition, Non-resident financial sector Liabilities held 2.73% of total Liabilities and decreased by 29.12% YOY to reach $3.11B in August 2023. More importantly, the dollarization ratio for private sector deposits increased from 78.24% in August 2022 to 96.44% in August 2023.
In conclusion, the Purchasing Managers Index (PMI) report for Lebanon paints a challenging picture for the nation’s economic landscape. The drop in PMI from 49.1 in September to 48.9 in October signifies a contraction in economic activity, at a faster pace, and raises concerns about the stability of Lebanon’s economy. Moreover, the shadow of regional conflicts looms large, with the Hezbollah-Israel hostilities in southern Lebanon triggering a cascade of negative effects. In the face of these multifaceted challenges, it is essential for Lebanon to address both its economic concerns and the broader regional dynamics that affect its stability. Initiatives to stimulate the economy, enhance political stability, and foster international confidence are urgently required. While Lebanon’s path ahead remains challenging, concerted efforts can pave the way for recovery and growth, ensuring a brighter future for the nation.