Lebanon’s private sector faced a sharp decline in May 2024, as the Purchasing Managers’ Index (PMI) fell to a 16 month low. In more details, Blom Lebanon PMI contracted remarkably from 48.9 in April to 47.9 in May. Unfortunately, Lebanon’s economic situation remains dire, primarily due to the lack of necessary economic reforms. The ongoing conflict in Gaza, frequent clashes at Lebanon’s southern border, and the immense strain of the refugee crisis have all contributed to worsening an already precarious economic and social landscape. This combination of factors has made the economic outlook highly uncertain, further complicating the prospects for recovery.
Despite some progress such as the drop in inflation and stable exchange rate — largely supported by the Banque du Liban’s (BdL) decision to cease debt financing and exchange subsidies, as well as efforts to eliminate the fiscal deficit — these measures alone are insufficient to catalyze a full economic recovery.
Furthermore, the absence of a credible and financially viable strategy to address the deep-seated problems within the banking sector continues to stymie economic growth. This situation prevents the recovery of deposits and has led to a growing reliance on a cash-based and informal economy. This shift not only undermines formal economic activities but also heightens the risks of illicit activities, further destabilizing the economic environment. The pathway to a sustainable recovery and the attraction of new investment and international financial support hinges on implementing comprehensive economic reforms. These reforms must address the structural issues plaguing the economy. Without these critical reforms, Lebanon’s economy will continue to struggle, and the population will bear the brunt of the ongoing economic hardships, with no end in sight.
Moreover, Lebanon relies heavily on foreign aid, which underscores the critical role that international assistance plays in stabilizing the nation amidst its ongoing crises. Indeed, by the third quarter of 2023, Lebanon received substantial foreign aid through allocated and committed grants. The total amount disbursed to Lebanon in 2023 was USD 935.48M. Additionally, there were outstanding grants committed for 2023 amounting to approximately USD 188.73M. However, in 2024 onwards the commitments amounted to a total of USD 190.77M. The top three major donors—USA, EU, and Germany—constitute over 60% of the total aid. In more details, the United States of America grasped 28%, the European Union gripped 21% and Germany accounted for 13% of the total aids inflows to Lebanon.
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%. Unfortunately, Beirut 4 and 5 stars hotels have been experiencing a reduced activity due to the continuing conflict between Israel and Gaza and the Lebanese southern border. In more details, the average room rate in dollars currency 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.
Indeed, the activity at Rafic Hariri International Airport has also decreased in April 2024 for the fourth month in a row. The cumulative number of passengers at Beirut International airport in 2024 dropped by 6.34% annually, reaching 1,784,786 passengers by April 2024. The breakdown of the airport’s statistics revealed that total arrivals declined by 5.81% year-on-year (YOY) to stand at 871,961 passengers by April 2024 compared to 925,773 passengers by April 2023. Likewise, number of departing passengers decreased by 6.59% on yearly basis to reach 911,103 passengers by April 2024, compared to 975,397 passengers by April 2023. Moreover, transit passengers dropped from 4,516 passengers in April 2023 to 1,722 passengers in April 2024.
And, according to the data by the Ministry of Tourism, the number of incoming visitors witnessed an annual drop of 13.52% in the first quarter of 2024, reaching 237,633 by March 2024, compared to 274,787 by March 2023. Unfortunately, following the conflict between Israel and Gaza and the Lebanese southern border, many countries urged their citizens not to travel to Lebanon. The breakdown of statistics by the Ministry of Tourism reveals that the number of tourists from the top three destinations recorded considerable downticks. In detail, Europeans grasped the lion’s share of 38% of total tourists. Travelers from the Arab countries came in second, grasping a share of 31% of the total while tourists from the America constituted 16%, of total tourists. In more details, the number of European tourists dropped by 17.26% year-on-year (YOY) to 89,640 by March 2024. Also, the number of tourists from the Arab countries and American continent declined respectively by 11.93% and 14.63% YOY to reach 73,934 and 38,180 visitors by end of the first quarter of 2024.
In addition, total container activity including trans-shipment (TEU+TS) slightly fell by 0.81% on a yearly basis to stand at 178,946 twenty-foot equivalent unit (TEU) for the month of March 2024. In more details, trans-shipment activity (TS) added 5.53% YOY to 56,238 TEU, while container activity (TEU) dropped by 3.47% on a yearly basis to 122,708 TEU by March 2024. On a monthly basis, total container activity dropped by 2.64% to stand at 62,417 twenty-foot equivalent units (TEU), while container activity (TEU) dropped by 0.91% for the month of March 2024 compared to same month last year to reach 45,294 TEU. Furthermore, trans-shipment activity (TS) declined by 6.93% to 17,123 TEU for the month of March 2024, compared to 18,397 TEU in March 2023.
In this respect, Lebanon’s trade deficit totaled $13.99B down from $15.56B during the same period last year. Total imported goods dropped by 4.85% year-on-year (YOY) to $18.13B while total exports increased by 18.53% YOY to stand at $4.14B by December 2023. In details, the “Mineral products” grasped the lion’s share of total imported goods with a stake of 27.58%. “Pearls, precious stones and metals” ranked second, composing 13.94% of the total while “Machinery; electrical instruments” and “Products of the chemical or allied industries” grasped the respective shares of 9.56% and 7.04%, respectively. On an annual basis, the value of imported “Mineral products” rose by 36.75%, from $3.66B to $5B by December 2023. Furthermore, the value of imported “Pearls, precious stones and metals” rose significantly by 120.22% from $1.15B to $2.53B by December 2023. On a different note, the top three import destinations by December 2023 were China, Greece, and Switzerland grasping the respective shares of 11.52%, 9.81%, and 9.67% of the total value of imports. However, it is surprising that 2023 imports remained relatively high – given that the increase in 2022 was to pre-empt the higher customs dollar to be set in 2023 – and some of the explanations centered on the fact that Lebanese imports include imports to Syria as well, or that the estimated GDP as a determinant of imports is undervalued, or that there are strong wealth effects not accounted for driven by more house ownership (bought by cheaper bank loan payments) and by more USD and gold hoarding.
On a positive note, Lebanese car market expanded by 22.84% YOY by April 2024, rising from 1,480 cars in April 2023 to 1,818 cars in April 2024. On a monthly basis, 596 cars were sold in April 2024. The distribution of cars was as follows: Japan cars took the highest share of 39.8%, European cars came second and accounted for 21.6% of car sales, and Korean Cars grasped 20.3% of the total. Furthermore, the leading sellers of vehicles in Lebanon were Kia, Nissan and Suzuki with number of vehicles sold in April alone totaled 98, 62, and 57 respectively, out of 596 sold cars. It is interesting to note that in April 2024, the share of non-gasoline cars and SUV (Hybrid, Plug-in Hybrid and Fully Electric cars) reached a total of 10 automobiles, out of which five were BMW cars, three were Audi SUV, one was Mercedes SUV and one MG SUV. Lebanon’s car sector has undergone some fluctuations in the last four years as the sales of vehicles were significantly lower than in years 2019 and 2020 as cars were being purchased through discounted checks at the beginning of the crisis.
Also, there has been some progress in lowering inflation. In fact, according to the Central Administration of Statistics (CAS), the Consumer Price Index (CPI) revealed that Lebanon’s inflation rate reached 59.67% by April 2024, significantly lower rate than in previous months. Interestingly, Goldman Sachs observed in its CEEMEA Economics Analyst MENA Outlook in May 2024, that the stabilization in the currency has helped ease domestic inflationary pressures. In details, “Housing and utilities”, inclusive of water, electricity, gas and other fuels (grasping 28.4% of the CPI) added a yearly 87.36% by April 2024. Similarly, “Owner-occupied” rental costs increased by 128.16% year-on-year (YOY) and the prices of “water, electricity, gas, and other fuels” followed a significant increase by 47.23% YOY.
According to the balance sheet of Banque du Liban (BDL), the central bank’s total assets declined by 8.37% compared to last year, to reach $93.56B by end of April 2024, amid adopting the 89,500 LBP/USD official rate by BDL since February 1st 2024. The fall was mainly due to the 98.86% year-on-year (YOY) drop in other assets, reaching $124.28M by end of April 2024. The gold account, representing 22.81% of BDL’s total assets, increased by 16.69% yearly to reach $21.35B by end of April 2024. Additionally, BDL’s foreign assets, consisting of 15.91% of total assets, rose by 2.99% YOY to stand at $14.89B by end of April 2024, noting that BDL holds in its foreign assets $5B in Lebanese Eurobonds. On the liabilities front, financial sector deposits, representing 93.09% of BDL’s total liabilities, decreased by 3.24% and reached $87.09B by end of April 2024 compared to last year, of which more than 90% are denominated in dollars.
According to BDL’s latest monetary report, the BOP recorded a surplus of $442.5M by March 2024, far less than the surplus over the same period last year of $1,174.6M. Accordingly, Net Foreign Assets (NFAs) of BDL rose by $292.2M and the NFAs of commercial banks rose by $150.2M by March 2024.
According to Lebanon’s consolidated commercial banks’ balance sheet, total assets declined annually by 9.85% to stand at $103.8B by March 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 78.25% of total assets, dropped annually by 4.92% to settle at $81.23B in March 2024. Deposits with the central bank (BDL) represented 99.88% of total reserves, and decreased by 4.21% YOY, to reach $81.13B in March 2024. Claims on resident customers, constituting 5.73% of total assets, shrank considerably by 31.19%, to stand at $5.95B in March 2024. Moreover, resident securities portfolio, representing 4.62% of total assets, dropped by 31.91% in March 2024 to stand at $4.8B. More specifically, the Eurobond holding recorded a decline of 21.39% since March 2023, to reach $2.22B (net of provisions) by end of March 2024. On the liabilities side, resident customers’ deposits were the main account, representing 66.45% of total liabilities; they dropped by 7.99% since March 2023 to reach $68.98B by the month of March 2024. As for non-resident customers’ deposits, grasping 20.17% of total liabilities, they recorded a drop of 2.53% to stand at $20.94B in March 2024.
Furthermore, 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 190,418 checks by April 2023 to 75,294 checks by April 2024. However, the cumulative value of cleared checks in local currency increased from LBP 17,963B by April 2023 to LBP 23,624B by April 2024. This upsurge in value of Lebanese checks reflects a larger percentage of discounting Lebanese checks in the market. However, the cumulative value of cleared checks in foreign currency dropped from $1,688M by April 2023 to $581M by April 2024. Moreover, the volumes of cleared checks in Lebanese Pounds and foreign currencies witnessed substantial yearly drop of 52.01% and 83.6% respectively to settle at 66,947 and 8,347 checks, by April 2024. Accordingly, the dollarization rate of checks in terms of volume fell from 26.73% in April 2023 to 11.09% in April 2024. The number of returned checks dropped substantially by 73.94% YOY to stand at 426 checks. Finally, on a monthly basis, a total number of 1,915 fresh checks were issued in April 2024, surpassing the previous month’s figure of 1,690; notably the total number of fresh checks in the first four months of 2024 exceeds the cumulative number of fresh checks issued from July till December 2023 (within 6 months), which stood at 2,395. As such, there is a growing demand for fresh checks among businesses.
Moreover, according to Cadastre, the cumulative number of Real estate (RE) transactions reached 9,361 valued at $1.38B by April 2024. On a monthly basis, the number of RE transactions stood at 2,718 in the month of April 2024, compared to 1,761 transactions same month previous year and 3,312 transactions in March 2024. In details, Zahle holds the biggest share of real estate transactions at 732, or 27% of total RE transactions, in the month of April 2024, followed by North at 682 transactions or 25% of total RE transactions. Furthermore, South region grasped 18% of total RE activity in April 2024 while Beirut held 349 transactions or 13%. Noting that no RE transaction was recorded in the area of Baabda and Metn for the month of April 2024. Moreover, the value of Real estate transaction reached $180.71M in April 2024 out of which Beirut grasped the lion’s share of the total value, equivalent of 48% and worth $86.4M, while the South followed, constituting 17% of the total and worth $30.09M.
According to the data from the Orders of Engineers in Beirut and Tripoli, total construction permits witnessed a year-on-year (YOY) decrease of 11.07% to reach 2,956 permits by April 2024 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. Nonetheless, the Construction Area Authorized by Permits (CAP) increased by 23.94% to record 1,651,873 square meters (sqm). This could be explained by the increased tendency for group projects rather than individual projects. Moreover, construction activity witnessed a significant reduction regionally compared to last year. Across the governorates, Mount Lebanon grasped 34.64% of total permits, and accounted for 1024 permits in April 2024 compared to 1,366 in April 2023. Regarding South governorate, it came second and represented 26.45% of total permits; its number of permits recorded 782 permits compared to 887 in April 2023. In Nabatieh, 474 permits were registered in April 2024, representing 16.04% of total permits. Furthermore, Bekaa governorate followed with 434 permits and representing 14.68% of total permits in April 2024. Beirut governorate’s share of permits was 4.8% with 142 permits only.
As such, BLOM Lebanon PMI registered signs of contraction at a higher pace with the headline PMI index posting 47.9 in May down from 48.9 in April and 49.4 in March. The drop was due to significant decline in output, new orders and new export orders, largely due to the increasing tensions between Israel and Gaza and the Lebanese southern border. Unfortunately, in this respect, tensions along Lebanon’s southern border with Israel are likely to remain high for the rest of the year, and the risk of escalation is high. As such, the economic challenges remain acute and must be addressed soon
Nonetheless, despite the fall in PMI, employment in the private sector stabilized and inflation was lower. Indeed, Goldman Sachs observed in its CEEMEA Economics Analyst MENA Outlook in May 2024, that economic indicators in Lebanon are showing some signs of stabilization, despite the ongoing economic and political challenges the country is facing and that no solution to the default is in sight.