Lebanon’s private sector economy remained in contractionary territory in February 2024 with slight slip from January’s 49.4 to 49.1 in February, marginally a quicker deterioration in the situation of the Lebanese private sector economy. Lebanese businesses faced a difficult February due to a confluence of factors. Weak demand, attributed to both the war in Gaza and the challenging domestic political and economic situation, led to a decline in sales and new orders. Exports were also negatively impacted by the regional conflict. As a result, private sector employment levels in Lebanon saw their fastest decrease in ten months, albeit still small in absolute terms. This decline, coupled with lower staffing capacity, further reduced backlogs of work midway through the first quarter.
Politically, a group of international ambassadors known as “The Group of Five” (including the US, France, Saudi Arabia, Egypt, and Qatar) have stepped in to help break the impasse of the presidential deadlock. Despite twelve failed parliamentary sessions to elect a new president, the last one held in June 2023, The Group of Five remains committed to supporting Lebanon in achieving political stability. Their goal is to facilitate the formation of a new government and the election of a new president, ultimately aiming to rebuild power structures in Lebanon.
Moreover in February, the government approved a new public wage package in an effort to alleviate the financial strain caused by Lebanon’s economic crisis. This package increases monthly salaries for all public sector employees, including retirees, security forces, and civilian administration members, to a total of nine time their base salary. Retirees will receive a minimum raise of 8 million Lebanese pounds, while security forces and civilian administration members will receive additional transportation allowances and productivity bonuses. This increase is expected to significantly boost public sector employee salaries, with the average employee earning between 400 and 1200 USD monthly. However, the estimated cost of this package, around 150 million USD per month, poses a significant challenge for the Central Bank of Lebanon (BDL) amidst ongoing economic and political turmoil. The ability to sustain this increase relies heavily on maintaining sufficient USD inflows from various sources. While a step towards addressing the financial hardship faced by public sector employees, this package is designed to be more measured than previous attempts to avoid further exacerbating the existing economic crisis.
Also this month, the Central Bank of Lebanon (BDL) issued two important circulars on February 2nd, 2024. Circular 167 mandates banks to use a new exchange rate, announced on BDL’s platform, for valuing their dollar-denominated assets and liabilities when preparing financial statements. This comes into effect retroactively from January 31st, 2024, and precedes decisions regarding bank deposits at BDL and capital control laws.
Circular 166 replaces the previous Circular 151 and allows certain holders of USD accounts opened after October 31st, 2019, to withdraw $150 per month. This program has limitations, excluding accounts that have received large withdrawals, conversions from LBP to USD, loan payments, or Sayrafa platform benefits exceeding specific thresholds. The cost of this program, estimated to exceed $300 million annually, will be shared by banks and is initially effective until June 30th, 2024, with a possibility of renewal. Notably, the exchange rate offered by BDL to banks remains around 15,000 LBP per USD.
On a different note, World Bank stated that remittance receipts in Lebanon represent 27.5% of GDP and account for more than 80% of the aggregate of external resource flows (sum of remittances, FDI, and ODA). Lebanon remains the most vulnerable economy in the region as the country is facing debt restructuring, hyperinflation and a sharp devaluation of its currency. Unfortunately, the country remains without reform plans since 2019 and without a Head of State since end of October 2022.
As for the Lebanese exchange rate, BDL recently took a step towards exchange rate unification by setting a new official rate of 89,500 LBP per USD for internal BDL calculations and banks’ financials. This change, effective February 1st, 2024, doesn’t affect the old official rate of 15,000 LBP per USD for now. Interestingly, the parallel market rate has remained relatively stable around 89,700 LBP per USD by end of February 2024. However, concerns linger, despite the recent budget approval, Lebanon’s ongoing financial crisis and lack of a clear recovery plan, coupled with regional uncertainties, cast doubt on the sustainability of this stability and Lebanon’s economic future.
On the economic front, Lebanon’s Sustained High Inflation Rate Hits a Yearly 177.25% by January 2024. Meanwhile, escalating political tensions in the Red Sea with no resolution seen in the near future pose a significant threat to the potential closure of the Bab el Mandeb Strait, a vital global maritime passageway. Such an occurrence caused supply chain disruptions, an upturn in shipping costs, and consequently, elevated consumer prices. The implications of these developments may result in a broader surge in inflation. As for Lebanon, already struggling with the challenges of persistent inflation since late 2019, it would encounter heightened difficulties in preserving price stability amid prolonged economic uncertainty.
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 208.54% by January 2024. Similarly, “Owner-occupied” rental costs increased by 364.99% year-on-year (YOY) and the prices of “water, electricity, gas, and other fuels” followed a significant increase by 87.97% YOY. Looking at the prices of “Food and non-alcoholic beverages” (20% of CPI), it surged by 180.96% 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 103.65% and 146.54% respectively by January 2024. Also, “Restaurant and Hotels” (2.8% of CPI) increased yearly by 154.11% by January 2024. Concurrently, costs of “Clothing and Footwear” (5.2% of CPI) surged by 133.79% by January 2024, and the prices of “Communication” (4.5% of the CPI) increased by 115.92%. 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 122.78%, 195.37%, and 126.59%, respectively, by January 2024. Interesting to note that monthly inflation between December 2023 and January 2024 stood at 2.87%.
The latest statistics on activity at the Port of Beirut showed that container Activity up 15.74% by November 2023. Total container activity including transshipment (TEU+TS) increased by a yearly 15.74% to stand at 757,336 twenty-foot equivalent unit (TEU) for the month of November 2023, with transshipment activity (TS) adding 92.5% YOY to 255,089 TEU, while container activity (TEU) dropped by 3.28% on a yearly basis to 502,246 TEU by November 2023. On a monthly basis, total container activity decreased by 4.63% to stand at 57,707 twenty-foot equivalent units (TEU). In more details, container activity (TEU) diminished by 4.61% for the month of November 2023 compared to same month last year to reach 41,249 TEU while transshipment activity (TS) grew by 12.62% to 16,458 TEU for the month of November 2023, compared to 14,614 TEU in November 2022. Specifically, the transshipment volume of CMA CGM, one of the two major shipping lines operating at the Port of Beirut, increased annually by 75.46% to stand at 166,292 TEU by November 2023. Similarly, transshipment volume of MSC, the other major line, added 130.65% YOY to 49,126 TEU by the same month. Furthermore, the local volume of CMA CGM dropped by 8.99% to reach 156,931 TEU, and local volume of MSC fell by 12.42% to stand at 101,124 TEU by the month of 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 8.39% compared to last year, to reach $93B by mid of February 2024, amid adopting the 89,500 LBP/USD official rate by BDL since February 1st 2024. The fall was mainly due to the 99.05% year-on-year (YOY) drop in other assets and reached $93.25M by mid of February 2024 compared to 9,804M by February 15, 2023. Interesting to mention that based on Central Council decision number 23/36/45 dated 20/12/2023, all previous Central Council decisions related to Seigniorage were suspended and all deferred interest costs emanating from open-market operations were presented under a new line item. As a result, all deferred interest costs included in Other Assets and Assets from Exchange Operations amounting to LBP 118.97 Trillion as of 31/12/2023 were transferred to “Deferred Open-Market Operations”. Furthermore, the gold account, representing 19.81% of BDL’s total assets, increased by 8.85% yearly to reach $18.42B by mid of February 2024. Additionally, BDL’s foreign assets, consisting of 15.76% of total assets, dropped by 1.07% YOY and stood at $14.66B by mid of February 2024, increasing by $75M from end of January 2024. Noting that BDL holds in its foreign assets $5B in Lebanese Eurobonds.
On the liabilities front, financial sector deposits, representing 93.4% of BDL’s total liabilities, decreased by 3.58% and reached $86.87B by mid of February 2024 compared to last year, of which more than 90% are denominated in dollars. Lastly, currency in Circulation outside of BDL, consisting of 0.67% of BDL’s total liabilities, plunged by 87.62% annually to reach $622M by mid of February 2024 amid adopting the 89,500 LBP/USD official rate by BDL.
Furthermore, according to Ernst & Young Middle East hotel benchmark survey, the occupancy rate in Beirut’s 4- and 5-star hotels reached 41.4% percentage points (pp) by December 2023, down from last year’s percentage of 48.4%. It is important to acknowledge that the occupancy rate in Beirut 4 and 5 stars hotels experienced a decline in December due to the continuing conflict between Israel and Gaza after Hamas attack on October 7, 2023 despite the holiday season in December. In fact, it has rapidly become a cross-border threat for the region given the heightened tensions between Lebanese armed group Hezbollah and Israel. In more details, the average room rate in dollars currency in Lebanon rose substantially by 192.4% to stand at $149, additionally the RevPAR increased by 150.2% to reach $62 for the month of December 2023.
On a regional level, hospitality markets in Cairo city and Makkah in KSA witnessed an increase across all performance indicators in December 2023 compared to December 2022. In more details, the occupancy rates in Cairo city added 0.3% to reach 71.5% while Makkah City occupancy rates added 7% to reach 74.4%. Makkah’s hospitality sector observed a remarkable RevPAR growth of 44.5% from $111 in December 2022 to $161 in December 2023. Meanwhile, average room rate in Makkah jumped by 30.8% from $165 in December 2022 to $216 in December 2023. As for Cairo city, the average room rate reached $145 by December 2023, thus RevPAR increased by 78.2% to stand at $103 during the same period.
On a different note, the total number of cleared checks in the Lebanese financial system decreased from 68,843 checks by January 2023 to 23,225 checks by January 2024. Moreover, the volumes of cleared checks in Lebanese Pounds and foreign currencies witnessed significant yearly drops of 58.07% and 84.30% respectively to settle at 19,849 and 3,376 checks, by January 2024. Accordingly, the dollarization rate of checks in terms of volume fell from 31.23% in January 2023 to 14.54% in January 2024. Notably, the number of returned checks fell substantially by 67.43% YOY to stand at 171 checks. Moreover, the value of returned checks in foreign currency increased by 60% by January 2024 to reach $16M; however, the value of returned checks in local currency decreased by 22.16% YOY to reach LBP 137B in January 2024.
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 January 2024, a total number of 1,245 checks were issued from fresh accounts, of which 870 checks are in USD currency amounting $9.93M and 375 checks are in LBP currency amounting LBP 632B. The January 2024 recorded 1,245 checks represent 51.98% of total checks issued since the introduction of the new clearing system in July 2023 (6 months period). Moreover, the checks issued from USD fresh accounts in January 2024 represented 69.88% of total checks compared to 30.12% in fresh LBP. When comparing the number of checks issued in January 2024 with those issued in December 2023, the number stood at 1,245 checks in January 2024 from 815 checks in December 2023.
Moreover, the data released by the Ministry of Finance (MoF) indicated that Lebanon’s gross public debt hit $102.47B in January 2023, thereby recording an annual increase of 3.2% YOY. The rise is mainly attributed to the annual increase in foreign currency debt (namely in USD) by 7.35%, to stand at $41.57B by January 2023. In turn, total foreign debt grasped a stake of 40.57% of the total public debt by January 2023. It is worth mentioning that $14.43B represents the unpaid Eurobonds, their coupons and accrued interests, due to the default on government Eurobonds in March 2020. Meanwhile, debt in local currency (denominated in LBP) rose slightly by 0.57% to stand at $60.89B in January 2023, and constituted 59.43% of the total public debt. Looking at net domestic debt, which excludes public sector deposits with the central bank and commercial banks, it decreased remarkably by 13.97% YOY to $41.85B in January 2023.
According to the data from the Orders of Engineers in Beirut and Tripoli, the total construction permits witnessed a year-on-year (YOY) significant decrease of 35.39% to reach 807 permits by January 2024. Likewise, the Construction Area Authorized by Permits (CAP) declined by 14.65% to record 370,840 square meters (sqm) due to several reasons such as public institution’s strike, decrease in the purchasing power of most of Lebanese population in addition to the ongoing security concerns in the southern border and the war in Gaza. Moreover, construction activity witnessed a remarkable decrease regionally compared to last year. Across the governorates, Mount Lebanon grasped 32.59% of total permits, and accounted for 263 permits in January 2024 compared to 510 in January 2023. Regarding South governorate, it came second and represented 29.86% of total permits; its respective number of permits recorded 241 permits compared to 339 in January 2023. In Nabatieh, 146 permits were registered in January 2024 and representing 18.09% of total permits compared to January 2023 of 239 permits. Furthermore, Bekaa governorate followed with 98 permits and representing 12.14% of total permits in January 2024 compared to January 2023 of 111 permits. Beirut governorate’s share of permits was 4.09% with 33 permits only.
Furthermore, Real Estate Demand came lower by an annually 84.96% By End of 2023. According to the data from the General Directorate of Land Registry and Cadastre (LRC), the number of Real estate (RE) transactions stood at 14,979 transactions by end of 2023, compared to 79,990 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 $4.12B by December 2023 calculated at the new official rate of USD/LBP 15,000, which is 71.26% lower than $14.36B in last year.
On a monthly basis, the number of RE transactions stood at 3,340 in the month of December 2023, compared to 2,610 transactions in the same month previous year and 3,805 transactions in November 2023. In details, South region holds the biggest share of real estate transactions at 835, or 25% of total RE transactions, in the month of December 2023, followed by North at 768 transactions or 22.99% of total RE transactions. Furthermore, Zahle grasped 22.96% of total RE activity in December 2023, and 12.84% or 429 transactions was the share that the Nabatieh grasped out of the total RE transactions, while Beirut held 412 transactions or 12.34%. Noting that no RE transactions was recorded in the area of Metn, Kesserwen, and Baabda for the month of December 2023. Moreover, the breakdown of RE activity by value for December 2023 showed that Beirut grasped the lion’s share of the total value of RE transactions, equivalent to 50.75% and worth $517.13M, while the South followed, constituting 23.50% of the total and worth $239.44M.
Meanwhile, Lebanese Cars Market Declined in 2024 by 11.75% YOY by January 2024. According to the data revealed by “Rasamny Younis Motor Co sal”, Lebanese car market deteriorated by 11.75% YOY by January 2024. On a monthly basis, 571 cars were sold in the month of January 2024. The distribution of cars was as follows: Japanese cars took the highest share of 41.51%, European cars accounted for 29.6%, and Korean Cars grasped 15.06% of the total. Furthermore, the leading sellers of vehicles in Lebanon are Mazda, Toyota, and Kia with number of vehicles sold in the month of January alone totaled 71, 65, and 58 respectively, out of 571 sold cars.
Despite a tentative rebound in Lebanon’s car sector, sales of passenger vehicles are significantly lower than both 2018 and 2020 levels. The demand for new vehicles is restricted by inadequate financing options, exacerbated by the depreciating exchange rates of the Lebanese currency.
According to BDL’s latest monetary report, the BOP recorded a surplus of $2.24B by December 2023, far better than the deficit over the same period last year of $3.2B. Accordingly, Net foreign Assets (NFAs) of BDL fell by $0.81B while the NFAs of commercial banks rose by $3.05B by December 2023.On a monthly basis, the BOP recorded a surplus of $591.3M in December 2023, where the NFA of BDL increased by $131.6M and NFA of banks rose by $459.7M. For the latter, the changes were noticeable on both sides of the commercial banks’ balance sheet. On the assets side, claims on non-resident financial sector rose by $147.2M, non-resident securities portfolio increased by $23.4M and other foreign assets increased by $86.2M whereas deposits with non-resident central banks decreased by $100M and claims on non-resident customers declined by $33.5M in December 2023. On the liabilities side, non-resident customers deposit declined by $46.8M and non-resident financial sector liabilities decreased by $138.8M while non-resident debt securities issued increased by $1.61M in December 2023.
According to Lebanon’s consolidated commercial banks’ balance sheet, total assets decreased annually by 31.83% to stand at $115.25B by December 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 72.99% of total assets; they dropped annually by 23.4% to settle at $84.12B in December 2023. Deposits with the central bank (BDL) represented 99.41% of total reserves, and decreased by 20.71% YOY, to reach $83.62B in December 2023. Furthermore, Vault cash in Lebanese pound fell by 88.67% on a yearly basis to stand at $492.54M 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 6.21% of total assets, shrank significantly by 59.88%, to stand at $7.15B in December 2023. Moreover, Resident Securities portfolio (5.13% of total assets) dropped by 58.26% in December 2023 to stand at $5.91B. More specifically, the Eurobond holding recorded a decline of 25.31% since December 2022, to reach $2.19B by end of December 2023. Additionally, claims on non-resident financial sector increased by 6.18% YOY to stand at $4.46B by December 2023.
On the liabilities side, resident customers’ deposits were the main account, representing 63% of total liabilities; they decreased by 27.51% since December 2022 to reach $72.61B by the month of December 2023. In more details, deposits in foreign currencies (95.73% of resident customers’ deposits) decreased by 4.99% YOY to reach $69.51B by December 2023, additionally deposits in LBP (4.27% of resident customers’ deposits) fell by 88.51% YOY to stand at $3.1B by December 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 9.66% and stood at $21.14B in December 2023. In details, the deposits in LBP fell by 90.56% to reach $190.15M and deposits in foreign currencies declined by 2.04% to reach $20.95B over the same period. In addition, Non-resident financial sector liabilities held 2.5% of total liabilities and decreased by 33.11% YOY to reach $2.89B in December 2023. More importantly, the dollarization ratio for private sector deposits increased from 76.06% in December 2022 to 96.34% in December 2023.
In summary, the Lebanese private sector showed signs of faster deterioration in the second month of 2024 as economic challenges persist and constraints weigh on the activity of the private sector. It seems the economy can’t get over the hump and reach a PMI of 50 or higher unless and until political stability is maintained and economic reforms are sustained. Otherwise, it will stay in a state of “stable, permanent underperformance”.
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