Lebanon’s private sector faced a notable setback in December, as reflected in the Purchasing Managers’ Index (PMI), indicating a sharp decline in business conditions. This downturn is particularly noteworthy given the typical festive period, where businesses traditionally experience improvements during holidays and Christmas. The challenging economic environment, compounded by factors such as political instability, financial crises, and the impact of the Gaza war, has evidently taken a toll on Lebanon’s private sector. On the political front, an increased uncertainty prevailed among the political class, especially concerning the potential extension of the army commander’s term. Meanwhile, despite efforts to contain regional effects from the Gaza war, Lebanon continues to grapple with economic challenges. The Israel-Hamas Conflict further worsened the situation, causing setbacks in the tourism industry during the festive season as the decline is characterized by rapid contractions in output and new orders, influenced by factors like weakened client purchasing power and a slight drop in new export business. On a positive note, there was a decline in price pressures. Despite a slight improvement in the Future Activity Index, it still reflects a pessimistic business sentiment due to the challenging domestic landscape.
In this context, Moody’s maintains Lebanon’s C rating, expecting bondholder losses exceeding 65% due to the ongoing default since March 2020. The stable outlook reflects anticipation of persistent challenges, with weak institutions, political deadlock, and exposure to the Israel-Hamas conflict. The C rating is affirmed based on delays in debt restructuring, significant public debt (over 170% of GDP pre-default), economic contraction, currency devaluation, and soaring inflation. Environmental, social, and governance risks contribute to a lower credit impact score. Upward rating movements post-restructuring are unlikely unless Lebanon implements rapid fiscal consolidation and structural reforms over an extended period, ensuring debt sustainability.
The Lebanese currency has maintained a relatively stable exchange rate of approximately 89,700 USD/LBP in the past month, marking a departure from the prolonged depreciation since 2019. It’s crucial to recognize that this stability isn’t backed by robust fundamentals, given the ongoing financial crisis and the absence of a recovery plan. While recent steadiness might be linked to the Sayrafa platform’s halt and reduced market speculation, concerns persist due to uncertainties about Lebanon’s future and the broader regional context.
Moreover this month, The World Bank’s Lebanon Economic Monitor (LEM) Fall 2023 report, titled “In the Grip of a New Crisis,” highlights Lebanon’s severe economic challenges. Despite a temporary bottom in economic growth in 2023, the country faces ongoing crises, including the impact of conflict in Gaza, a projected inflation rate of 231.3%, and unsustainable sovereign debt. While the Central Bank has initiated some reforms, fundamental changes are needed. The report emphasizes the crucial role of remittances but warns that they alone cannot meet financing needs. The ongoing conflict is projected to contract real GDP, emphasizing the urgent need for comprehensive crisis resolution to address Lebanon’s deepening socioeconomic and financial crisis.
However, despite attempts to portray a sense of normalcy amid crisis conditions, the Lebanese economy continues to grapple with obstacles one after the other, particularly concerning the presidential elections adding to the regional geopolitical worries. That said the activity at Rafic Hariri International Airport has significantly deteriorated in November 2023 and registered a drop of 27.54% on a monthly basis following Hamas’ attack on Israel on October 7. Although, the cumulative count of passengers at Beirut International airport surged by 14.15% annually, reaching 6,621,355 passengers by November 2023, the monthly statistics showed a decline of 27.54% by the same period. In more details, on a monthly basis, arrivals decreased by 27.5% to stand at 151,846 and departures dropped by 26.06% in November to reach 171,488. Naturally, many citizens felt compelled to flee their country due to concerns about its potential involvement in the conflict. The breakdown of the airport’s statistics revealed that total arrivals jumped by 14.17% year-on-year (YOY) to stand at 3,215,786 by November 2023 compared to 2,816,765 by November 2022. Meanwhile number of departing passengers climbed by a yearly 15.06% to reach 3,394,150 by November 2023, compared to 2,949,774 by November 2022. Nevertheless, transit passengers dropped from 34,273 by November 2022 to 11,419 transit passengers by November 2023.
The latest statistics on activity at the Port of Beirut showed that Container Activity up 17.36% by September 2023. Total container activity including transshipment (TEU+TS) increased by a yearly 17.36% to stand at 621,781 twenty-foot equivalent unit (TEU) for the month of September 2023, with transshipment activity (TS) adding 110.3% YOY to 218,647 TEU, while container activity (TEU) dropped by 6.22% on a yearly basis to 403,132 TEU by September 2023. On a monthly basis, total container activity dropped by 7.61% to stand at 58,961 twenty-foot equivalent units (TEU), while container activity (TEU) dropped by 15.1% for the month of September 2023 compared to same month last year to reach 42,968 TEU. Meanwhile, transshipment activity (TS) grew by 23.83% to 15,993 TEU for the month of September 2023, compared to 12,915 TEU in September 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 100.96% to stand at 140,499 TEU by September 2023. Similarly, transshipment volume of MSC, the other major line, added 126.67% YOY to 44,712 TEU by the same month. Furthermore, the local volume of CMA CGM dropped by 13.44% to reach 120,957 TEU, and local volume of MSC fell by 17.37% to stand at 83,302 TEU by the month of September 2023.
Nevertheless, inflation in October 2023 remains notably high standing at 211.86%. This inflationary trend persists due to elevated prices across multiple sectors, primarily attributed to the widespread adoption of US dollar for daily expenditures and the significant increase of the custom dollar rate. 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 226.54% by November 2023. Also, “Owner-occupied” rental costs increased by 330.28% year-on-year (YOY) and the prices of “water, electricity, gas, and other fuels” followed a significant increase by 144.99% YOY. Looking at the prices of “Food and non-alcoholic beverages” (20% of CPI), it surged by 219.98% 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 142.68% and 186.74% respectively by November 2023. Also, “Restaurant and Hotels” (2.8% of CPI) increased yearly by 214.94% by November 2023. In the same token, costs of “Clothing and Footwear” (5.2% of CPI) surged by 177.35% by November 2023, and the prices of “Communication” (4.5% of the CPI) increased by 183.65%. 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 156.70%, 221.28%, and 134.23%, respectively, by November 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 43.24% compared to last year, to reach $107.64B by mid of December 2023, amid adopting the 15,000 LBP/USD official rate by BDL since February 2023. The fall was mainly due to the 91.82% year-on-year (YOY) drop in other assets, grasping 7.10% of BDL’s total assets and reaching $7.64B mid of December 2023. Furthermore, the gold account, representing 17.50% of BDL’s total assets, increased by 14.98% yearly to reach $18.83B by mid of December 2023. Furthermore, BDL’s foreign assets, consisting of 13.45% of total assets dropped by 5.06% YOY and stood at $14.47B by mid of December 2023, noting that BDL holds in its foreign assets $5B in Lebanese Eurobonds. Interesting to note that foreign assets increased by $199.78M in the first two weeks of December 2023 and increased by $690.70M since end of July 2023. On the liabilities front, financial sector deposits, representing 82.65% of BDL’s total liabilities, decreased by 16% and reached $88.96B by mid of December 2023 compared to last year, of which more than 90% are denominated in dollars. Lastly, currency in Circulation outside of BDL, consisting of 3.65% of BDL’s total liabilities, plunged by 92.08% annually to reach $3.92B by mid of December 2023 amid adopting the 15,000 LBP/USD official rate by BDL.
Lebanon’s Hotel Occupancy Rate reached 48% by September 2023, compared to 53.2% same month last year, and remained the Lowest Rate among Arab Countries, according to Ernst & Young Middle East hotel benchmark survey. It is important to acknowledge that the occupancy rate in Beirut 4 and 5- stars hotels experienced a decline in September 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 143.4% to stand at $148, additionally the RevPAR increased by 119.8% to reach $71 for the month of September 2023. Moreover, the average room rate in Lebanese pound has increased significantly by 498.1% ; in details, the average room rate in LBP reached LBP 13,177,040 in September 2023 and RevPAR (Revenue per available room) jumped by 440.1% from LBP 1,171,446 in September 2022 to LBP 6,326,967 in September 2023. On a regional level, hospitality markets in Makkah and Abu Dhabi witnessed an increase across all performance indicators in September 2023 compared to September 2022. In more details, the occupancy rates in Makkah added 9.7% to reach 71.4% while Abu Dhabi City occupancy rates added 4.6% to reach 78.1%. Makkah’s hospitality sector observed a remarkable RevPAR growth of 55.8% from $110 in September 2022 to $171 in September 2023. Meanwhile, average room rate in Makkah jumped by 34.7% from $177 in September 2022 to $239 by September 2023. As for Abu Dhabi, the average room rate rose by 21.2% from $78 in September 2022 to $94 in September 2023, thus RevPAR increased by 28.8% to stand at $74 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 1,480,354 checks by November 2022 to 411,335 checks by November 2023. Moreover, the cumulative value of cleared checks in local currency increased remarkably from LBP 23,461B by November 2022 to LBP 59,878B by November 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 $9,711M by November 2022 to $3,109M by November 2023. Moreover, the volumes of cleared checks in Lebanese Pounds and foreign currencies witnessed significant yearly drops of 60.43% and 86.41% respectively to settle at 320,133 and 91,202 checks, by November 2023. Accordingly, the dollarization rate of checks in terms of volume fell from 45.34% in November 2022 to 22.17% in November 2023. Notably, the number of returned checks fell substantially by 69.20% YOY to stand at 3,232 checks. Moreover, the value of returned checks in foreign currency increased by 25.71% by November 2023 to reach $176M, additionally the value of returned checks in local currency increased remarkably by 205.86% YOY to reach LBP 783B by November 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 November 2023, a total number of 1,580 checks were issued from fresh accounts, of which 695 checks are in USD currency amounting $9.80M and 885 checks are in LBP currency amounting LBP 1,762B. However, in November alone, number of checks issued from fresh accounts in dollar stood at 344 checks totaling $4,150,606 while number of checks issued from fresh accounts in LBP reached 275 checks amounting LBP 750B.
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 84.96% by November 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 of 84.96% yearly to stand at 11,639 transactions by November 2023, compared to 77,380 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 $3.10B by November 2022 calculated at the new official rate of USD/LBP 15,000, which is 75.99% lower than $12.94B in the same period last year. On a monthly basis, the number of RE transactions stood at 3,805 in the month of November 2023, compared to 9,874 transactions same month previous year and 4,409 transactions in October 2023. In details, Zahle region holds the biggest share of real estate transactions at 981, or 25.78% of total RE transactions, in the month of November 2023, followed by South at 927 transactions or 24.36% of total RE transactions. Furthermore, North grasped 22.39% of total RE activity in November 2023 and 12.93% or 492 transactions was the share that the Nabatieh grasped out of the total RE transactions while Beirut held 385 transactions or 10.12%. Noting that no RE transactions was recorded in the area of Metn, Kesserwen, and Baabda for the month of November 2023. Moreover, the breakdown of RE activity by value for November 2023 showed that Beirut grasped the lion’s share of the total value of RE transactions, equivalent of 52.19% and worth $609.38M, while the South followed, constituting 23.82% of the total and worth $278.09M.
Interesting to mention, Solidere reported reduced losses of $11.1 million in 2022, compared to $21.5 million in 2021, although consolidated losses were $5.2 million. The decline is attributed to ongoing real estate sales challenges amid economic difficulties in Lebanon and the region, exacerbated by fluctuating exchange rates. Despite lower real estate sales revenue, the company increased rent revenue to $31.4 million. Solidere maintained strong cash liquidity at $62.2 million, with no outstanding loans. The strategy included cost-cutting measures, reducing staff from 441 in 2021 to 219 in 2022, but administrative costs rose to $40.7 million. The company aims to unify exchange rates for financial reporting, addressing challenges beyond its control while committing to Beirut’s development.
Meanwhile, Lebanese Car Market deteriorated by 21.38% YOY by November 2023. In more details, for the period ending November 2023, the cumulative number of sold cars recorded a total of 4,898 compared to 6,230 cars by November 2022. On a monthly basis, 1,007 cars were sold in the month of November 2023. It is worth mentioning that no cars were registered in the previous months of August, September and October since the Association of imported automobiles in Lebanon (AIA) was closed. The distribution of cars was as follows: Japanese cars took the highest share of 40%, European cars accounted for 26%, and Korean Cars grasped 18% of the total. Furthermore, the leading sellers of vehicles in Lebanon are Toyota, Kia and Hyundai with number of vehicles sold in the month of November alone totalled 243, 104, and 81 respectively, out of 1,007 sold cars.
According to BDL’s latest monetary report, the BOP recorded a surplus of $1.46B by October 2023, far beyond the deficit over the same period last year of $2.86B. Accordingly, Net foreign Assets (NFAs) of BDL fell by $1.08B while the NFAs of commercial banks rose by $2.54B by October 2023. On a monthly basis, the BOP recorded a deficit of $81.2M in October 2023, where the NFA of BDL increased by $179M and NFA of banks dropped by $260.1M. The changes were noticeable on both sides of the commercial banks’ balance sheet; claims on non-resident financial sector dropped by $228.07M and claims on non-resident customers declined by $4.19M, deposits with non-resident central banks retreated by $48.46M, whereas other foreign assets increased by $21.44M and non-resident securities portfolio increased by $53.38M in October 2023. On the liabilities side, non-resident customers deposit rose by $11.18M while non-resident financial sector liabilities declined by $89.26M and non-resident debt securities issued dropped by 7.89M in October 2023.
Meanwhile, the 2024 budget submitted by the Ministry of Finance to the Lebanese Parliament is currently under review. However, due to the absence of a sitting President, the Parliament can’t enact it into law. The budget projects expenditures at 295.11 trillion LBP and revenues at 277.92 trillion LBP, resulting in a deficit of 17.19 trillion LBP. Criticisms include its lack of reform orientation, minimal allocation to capital expenditures, absence of specified exchange rates, and concerns about excessive or regressive new taxes in a challenging economic environment. The Finance and Budget Committee has removed redundant articles and is scrutinizing others for regressive elements. Overall, the budget is viewed as a transitory, stop-gap measure, raising questions about the delayed implementation of structural reforms.
According to Lebanon’s consolidated commercial banks’ balance sheet, total assets decreased annually by 31.82% to stand at $112.25B by October 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 75.04% of total assets; they dropped annually by 23.51% to settle at $84.24B in October 2023. Deposits with the central bank (BDL) represented 99.33% of total reserves, and decreased by 21.61% YOY, to reach $83.67B in October 2023. Furthermore, Vault cash in Lebanese pound fell by 83.38% on a yearly basis to stand at $562.95M 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 6.55% of total assets, shrank significantly by 62.33%, to stand at $7.35B in October 2023. Moreover, Resident Securities portfolio (5.05% of total assets) dropped by 61.95% in October 2023 to stand at $5.67B. More specifically, the Eurobond holding recorded a decline of 30.15% since October 2022, to reach $2.48B by end of October 2023. Additionally, claims on non-resident financial sector increased by 5.12% YOY to stand at $4.2B by October 2023.
On the liabilities side, resident customers’ deposits were the main account, representing 64.55% of total liabilities; they decreased by 26.97% since October 2022 to reach $72.45B by the month of October 2023. In more details, deposits in foreign currencies (95.85% of resident customers’ deposits) decreased by 6.58% YOY to reach $69.45B by October 2023, additionally deposits in LBP (4.15% of resident customers’ deposits) fell by 87.91% YOY to stand at $3.01B by October 2023. Noting that Lebanon has become dollarized and cash based. As for Non-resident customers’ deposits, grasping 18.9% of total liabilities, they recorded a drop of 9.16% and stood at $21.22B in October 2023. In details, the deposits in LBP fell by 90.53% to reach $188.82M and deposits in foreign currencies declined by 1.56% to reach $21.03B over the same period. In addition, Non-resident financial sector Liabilities held 2.69% of total Liabilities and decreased by 29.79% YOY to reach $3.02B in October 2023. More importantly, the dollarization ratio for private sector deposits increased from 77.57% in October 2022 to 96.47% in October 2023.
Important to note that Lebanese banks, including ten major ones, have submitted a memorandum to the Ministry of Finance, urging the government to repay its USD loans to the Banque du Liban (BDL). The banks emphasize that this repayment is crucial for BDL to fulfill its obligations to the banks, enabling them to return deposits to customers. The memorandum outlines the government’s debt to BDL, covering loans, BDL losses, and expenditures detailed in audits by Alvarez and Marsal and Oliver Wyman. The banks warn of potential legal action if the government fails to meet these demands, asserting that the responsibility for BDL losses lies with the government, not the banks. The banks argue that safeguarding their interests is essential, particularly given the significant losses and potential legal implications related to bank restructuring laws.
In summary, December presented heightened challenges for the Lebanese economy, marked by an accelerated contraction in the private sector despite the holiday season. The decline from 49.5 in November to 48.5 in December signifies a swifter downturn in economic activity, prompting concerns regarding stability. The unexpected decline in business activity during a typically buoyant economic period raises concerns about underlying issues affecting the country’s commercial landscape. Additionally, regional conflicts, notably the hostilities between Hezbollah and Israel, further compound these challenges. To effectively navigate these complexities, Lebanon must urgently address economic worries, fortify political stability, and instill international confidence through decisive economic reform initiatives. Despite the formidable path ahead, coordinated efforts have the potential to pave the way for recovery and growth, ensuring a more promising future for the nation.
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