Lebanon’s private sector economy persisted in contractionary territory in April 2024 at the fastest rate in the year-to-date reaching 48.9 compared to March’s 49.4 figure. The contraction was mainly due to a weaker demand and a subsequent drop in business activity which resulted from the escalating geopolitical tensions in the region. Particularly, sales to non-domestic clients dropped at the steepest rate for nearly a year-and-a-half. The escalating geopolitical tensions and security concerns in the region resulted in higher shipping costs to Europe due to the disturbances in the Red Sea were the main reasons behind the decrease in sales to non-domestic clients. Despite the fall in sales, staffing in April stabilized and companies increased their stocks and purchased more materials.
Politically, the negotiations regarding the French proposal to resolve the security conflicts in Southern Lebanon was dominating the work of “The Group of Five” (ambassadors of US, France, Saudi Arabia, Qatar and Egypt) trying to break the impasse of the presidential deadlock.
Lebanon’s hotel occupancy rate reached a low figure of 19.7% by January 2024. According to Ernst & Young Middle East hotel benchmark survey, the occupancy rate in Beirut’s 4- and 5-star hotels reached 19.7% percentage points (pp) by January 2024, down from last year’s percentage of 36.8%. It is important to acknowledge that the occupancy rate in Beirut 4 and 5 stars hotels recently experienced a decline due to the continuing conflict between Israel and Gaza and the Lebanese southern border.
In more details, the average room rate in dollars in Lebanon rose substantially by 187.8% to stand at $145, additionally the RevPAR increased by 54.1% to reach $29 for the month of January 2024.
On a regional level, hospitality markets in Jeddah city and Doha witnessed an increase across all performance indicators in January 2024 compared to January 2023. In more details, the occupancy rates in Jeddah city added 11.8% to reach 58.3% while Doha occupancy rates added 39.5% to reach 88.2%. Jeddah’s hospitality sector observed a remarkable RevPAR growth of 36.6% from $77 in January 2023 to $105 in January 2024. Meanwhile, average room rate in Jeddah jumped by 9% from $165 in January 2023 to $180 in January 2024. As for Doha, the average room rate reached $124 by January 2024, thus RevPAR increased by 92.1% to stand at $109 during the same period.
Similarly, number of airport passengers declined by 6.65% annually by March 2024. The activity at Rafic Hariri International Airport has decreased in March 2024 for the third month in a row after a rise in December 2023 following Gaza war. The escalating security issues since the beginning of October 2023 and the absence of cease fire agreement in Gaza in the near future resulted in cumulative count of passengers at Beirut International airport in 2024 to drop by 6.65% annually, reaching 1,272,520 passengers by March 2024 compared to March 2023.
The breakdown of the airport’s statistics revealed that total arrivals declined by 3.66% year-on-year (YOY) to stand at 620,539 passengers by March 2024 compared to 644,088 passengers by March 2023. Likewise, number of departing passengers decreased by 9.03% on yearly basis to reach 650,822 passengers by March 2024, compared to 715,406 passengers by March 2023. Moreover, transit passengers dropped from 3,641 passengers in March 2023 to 1,159 passengers in March 2024.
The monthly statistics showed a drop of 12.19% from March 2023 to March 2024. When digging into details, on a monthly basis, arrivals in March 2024 decreased by 8.34% to stand at 214,709 passengers and departures dropped by 15.66% to stand at 193,412 compared to March 2023.
The latest statistics on activity at the Port of Beirut showed that container activity went up by 0.19% by February 2024. Total container activity including transhipment (TEU+TS) slightly increased by a yearly 0.19% to stand at 116,529 twenty-foot equivalent unit (TEU) for the month of February 2024, with transhipment activity (TS) adding 12.1% YOY to 39,115 TEU, while container activity (TEU) dropped by 4.91% on a yearly basis to 77,414 TEU by February 2024.
On a monthly basis, total container activity dropped by 3.03% to stand at 56,765 twenty-foot equivalent units (TEU), while container activity (TEU) dropped by 12.73% for the month of February 2024 compared to same month last year to reach 35,657 TEU. Meanwhile, transhipment activity (TS) grew by 19.41% to 21,108 TEU for the month of February 2024, compared to 17,677 TEU in February 2023.
On the economic front, Lebanon’s high inflation rate hits a yearly 70.36% by March 2024. The persistent escalating political and military tensions in the Middle East and its effect on 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 is causing 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.
According to the balance sheet of Banque du Liban (BDL), the central bank’s total assets declined by 8.27% compared to last year, to reach $93.48B by mid-April 2024, amid adopting the 89,500 LBP/USD official rate by BDL since February 1st 2024. The main reason behind the drop in total assets was the 98.9% year-on-year (YOY) drop in other assets, which reached $116.11M by mid-April 2024 compared to $10,587M by April 15, 2023.
Furthermore, the gold account, representing 23.18% of BDL’s total assets, increased by 15.87% yearly to reach $21.67B by mid-April 2024 due to the increase in the price of gold worldwide. Additionally, BDL’s foreign assets, consisting of 15.89% of total assets, rose by 2.48% YOY and stood at $14.86B by mid-April 2024, and increased by $43.77M in the first two weeks of April 2024. Additionally, BDL holds in its foreign assets $5B in Lebanese Eurobonds.
On the liabilities front, financial sector deposits, representing 93.1% of BDL’s total liabilities, decreased by 3.4% and reached $87.02B by mid-April 2024 compared to last year, of which more than 90% are denominated in dollars. Moreover, public sector deposits, representing 4.81% of BDL’s total liabilities, dropped by 19.87% yearly and reached $4.5B by mid-April 2024. Lastly, currency in Circulation outside of BDL, consisting of 0.74% of BDL’s total liabilities, plunged by 84.32% annually to reach $695M by mid-April 2024 amid adopting the 89,500 LBP/USD official rate by BDL.
In addition, balance of payments (BoP) recorded a surplus of $390.6M by February 2024, far less than the surplus over the same period last year of $1,638.1M. Accordingly, Net Foreign Assets (NFAs) of BDL rose by $264.9M and the NFAs of commercial banks rose by $125.7M by February 2024.
For a meaningful analysis, we examine the NFAs of commercial banks. For the month of February, as BDL adopted the 89,500 LBP/USD, it was reflected by the decrease in both foreign assets and foreign liabilities, but more so for the latter. On the liabilities side, “Non-resident financial sector liabilities” dropped remarkably by 17.78% to reach $2.73B, in addition “Non-resident customers’ deposits” fell by 2.36% to reach $20.96B by February 2024. Meanwhile, on the asset side, “claims on non-resident financial sector” increased by 5.87% to reach $4.37B for the same period, whereas claims on non-resident customers dropped by 25.5% to reach $936M.
As to Lebanese commercial banks, its total assets dropped by 9.46% year-on-year to stand at $104.13B by February 2024 amid BDL’s adoption of a new exchange rate of LBP 89,500 per USD effective 31/01/2024.
On the assets side, currency and deposits with Central Bank represented a high figure of 78.03% of total assets; they dropped annually by 4.35% to settle at $81.25B in February 2024. Deposits with the central bank (BDL) represented 99.88% of total reserves, and decreased by 3.92% YOY, to reach $81.15B in February 2024. Furthermore, vault cash in Lebanese pound declined by 80.11% on a yearly basis to stand at $94.86M by the same period. The drop is attributed to the calculation based on the new official exchange rate of LBP 89,500 per USD.
Claims on resident customers, constituting 5.85% of total assets, shrank considerably by 34.04%, to stand at $6.09B in February 2024. Moreover, resident securities portfolio, representing 4.59% of total assets, dropped by 28.19% in February 2024 to stand at $4.78B. More specifically, the Eurobond holding recorded a decline of 22.65% since February 2023, to reach $2.19B by end of February 2024. Additionally, claims on non-resident financial sector grew by 5.87% YOY to stand at $4.37B by February 2024.
On the liabilities side, resident customers’ deposits were the main account, representing 66.46% of total liabilities; they dropped by 7.73% since February 2023 to reach $69.2B by the month of February 2024. In more details, deposits in foreign currencies (being 99.24% of resident customers’ deposits) declined by 5.07% YOY to reach $68.68B by February 2024, additionally deposits in LBP (0.76% of resident customers’ deposits) fell by 80.24% YOY to stand at $525M by February 2024 especially after applying the new official exchange rate of 89,500. This reveals that Lebanon has become dollarized and cash based.
As for non-resident customers’ deposits, grasping 20.13% of total liabilities, they recorded a drop of 2.36% and stood at $20.96B in February 2024. In details, the deposits in LBP fell by 84.51% to reach $31.34M (after applying the new official exchange rate of 89,500) and deposits in foreign currencies declined by 1.58% to reach $20.93B over the same period. In addition, non-resident financial sector liabilities held 2.62% of total liabilities and decreased by 17.78% YOY to reach $2.73B in February 2024. More importantly, the dollarization ratio for private sector deposits increased from 96.92% in February 2023 to 99.37% in February 2024.
According to the data published by the Association of Lebanese Banks’ (ABL), the total number of cleared checks in the Lebanese financial system decreased remarkably from 159,827 checks by March 2023 to 59,100 checks by March 2024. However, the cumulative value of cleared checks in local currency increased from LBP 14,886B by March 2023 to LBP 17,921B by March 2024. 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 dropped from $1,555M by March 2023 to $516M by March 2024.
Moreover, the volumes of cleared checks in Lebanese Pounds and foreign currencies witnessed substantial yearly drops of 55.3% and 83.46% respectively to settle at 51,846 and 7,254 checks, by March 2024. Accordingly, the dollarization rate of checks in terms of volume fell from 27.44% in March 2023 to 12.27% in March 2024.
Notably, the number of returned checks dropped substantially by 74.3% YOY to stand at 329 checks. Moreover, the value of returned checks in foreign currency decreased by 35.1% by March 2024 to reach $19.47M; additionally, the value of returned checks in local currency decreased by 44.14% YOY to reach LBP 162B in March 2024.
Banque du Liban (BDL) recently issued Circular 165, which permits depositors to make payments by check starting 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 March 2024, the cumulative number of checks issued from fresh accounts reached 4,317, of which 2,965 checks are in USD currency amounting $36.16M and 1,352 checks are in LBP currency amounting LBP 2,125B.
On a monthly basis, a total number of 1,690 fresh checks were issued in March 2024, surpassing the previous month’s figure of 1,382; notably the total number of fresh checks in 2024 exceeds the cumulative number of fresh checks issued from July till December 2023, which stood at 2,395. As such, there is a growing demand for fresh checks among businesses.
Meanwhile, Lebanese cars’ market has improved by 88.87% YOY by March 2024 according to the data revealed by “Rasamny Younis Motor Co sal”.
On a monthly basis, 335 cars were sold in March 2024. The distribution of cars was as follows: Japan cars took the highest share of 39.1%, Korean cars came second and accounted for 24.78% of car sales, and European Cars grasped 18.21% of the total.
Lebanon’s car sector undergone some fluctuations in the last 4 years, and sales of passenger vehicles were significantly lower than both 2019 and 2020 levels when cars were still being purchased through discounted checks at the beginning of the crisis. Currently, the demand for new vehicles is restricted by the absence of financing options, exacerbated by the depreciating exchange rates of the Lebanese currency.
In summary, the Lebanese private sector showed signs of rapid deterioration in April 2024 as economic challenges persist and constraints weigh on the activity of the private sector. This proves that the economy can’t reach a PMI of 50 or higher in the absence of political and security stability in addition to economic reforms. Otherwise, it will stay in a state of ‘stable under-performance’, but could also slip to severe instability if a wider war with Israel is ignited in the South and beyond.
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