Lebanon’s private sector faced a further drop in June 2024, reflected by the decline in Purchasing Managers’ Index (PMI) from 47.9 in May 2024 to 47.8 in June 2024. The Lebanese economic situation is still in a contraction phase since the beginning of 2024 mainly due to the absence of the essential economic and financial reforms as we are entering the fifth year of the crisis. Along with the absence of economic and financial reforms, the ongoing military activities on the southern border of Lebanon, in addition to refugee situation, are weighing heavily on the Lebanese economy and are well-reflected in the PMI readings.
In details, to start with, the activity at Rafic Hariri International Airport decreased in May 2024 for the fifth month in a row due to the prolonged conflicts on the Lebanese southern border. The cumulative count of passengers at Beirut International airport in 2024 dropped by 6.77% annually, reaching 2,291,936 passengers by May 2024. The breakdown of the airport’s statistics revealed that total arrivals declined by 5.29% year-on-year (YOY) to stand at 1,139,782 passengers by May 2024 compared to 1,203,482 passengers by May 2023. Likewise, number of departing passengers decreased by 7.89% on yearly basis to reach 1,150,049 passengers by May 2024, compared to 1,248,591 passengers by May 2023. Moreover, transit passengers dropped from 6,212 passengers in May 2023 to 2,105 passengers in May 2024.
Moreover, according to the data revealed by “Rasamny Younis Motor Co sal”, Lebanese car market expanded by 3.99% YOY by May 2024, rising from 2,605 cars in May 2023 to 2,709 cars by May 2024. On a monthly basis, 891 cars were sold in May 2024. The distribution of cars was as follows: Japanese cars took the highest share of 37.04%, Korean cars came second and accounted for 25.03% of car sales, and European Cars grasped 22% of the total. It is interesting to note that share of non-gasoline cars (Hybrid, Plug-in Hybrid and Fully Electric cars) sold in May 2024 recorded 168 cars (representing 18.86% of total sold cars), out of which 114 cars are SUVs. Toyota was also the leading non-gasoline cars seller with 24 HEV (Hybrid Electric Vehicle) SUVs, followed by Land Rover with 18 HEV SUVs in second place, and third came Lexus with 15 HEV SUVs. Lebanon’s car sector has 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 depreciated exchange rates of the Lebanese currency.
However, inflation in Lebanon is witnessing a gradual decrease. In fact, according to the Central Administration of Statistics (CAS), the Consumer Price Index (CPI), reached a yearly 51.59% by May 2024 which is lower than the previous month in which it recorded 59.67%. “Owner-occupied” rental costs increased by 72.39% year-on-year (YOY) and the prices of “water, electricity, gas, and other fuels” followed an increase by 55.18% YOY. It is interesting to note that monthly inflation between April 2024 and May 2024 stood at 0.02%.
And, according to the balance sheet of Banque du Liban (BDL), the central bank’s total assets declined by 10.33% compared to last year, to reach $93.91B by mid of June 2024, amid adopting the 89,500 LBP/USD official rate by BDL since February 1st, 2024. The fall was mainly due to the 97.89% year-on-year (YOY) drop in other assets, which reached $145.2M by mid of June 2024. The gold account, representing 22.76% of BDL’s total assets, increased by 19.76% yearly to reach $21.37B by mid of June 2024. Moreover, BDL’s foreign assets, consisting of 16.13% of total assets, rose by 5.11% YOY and stood at $15.15B by mid of June 2024, and increased by $63.38M in the first two weeks of June 2024, noting that BDL holds in its foreign assets $5B in Lebanese Eurobonds. On the liabilities front, financial sector deposits, representing 92.67% of BDL’s total liabilities, decreased by 2.81% and reached $87.02B by mid of June 2024 compared to last year, of which more than 90% are denominated in dollars.
As per BDL’s latest monetary report, the balance of payments (BOP) recorder a surplus of $585.1M by April 2024, far less than the surplus over the same period last year of $1,236.9M. Accordingly, net foreign assets (NFAs) of BDL rose by $370.9M and the NFAs of commercial banks rose by $214.2M by April 2024.
Also, according to Lebanon’s consolidated commercial banks’ balance sheet, total assets declined annually by 10.39% to stand at $103.7B by April 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 78.42% of total assets; they dropped annually by 4.99% to settle at $81.32B in April 2024. Deposits with the central bank (BDL) represented 99.87% of total reserves, and decreased by 4.14% YOY, to reach $81.22B in April 2024. Claims on resident customers, constituting 5.63% of total assets, shrank considerably by 30.86%, to stand at $5.83B in April 2024. Moreover, resident securities portfolio, representing 4.58% of total assets, dropped by 33.5% in April 2024 to stand at $4.75B. More specifically, the Eurobond holding recorded a decline of 21.22% since April 2023, to reach $2.21B (net of provisions) by end of April 2024. On the liabilities side, resident customers’ deposits were the main account, representing 66.47% of total liabilities; they dropped by 8.09% since April 2023 to reach $68.94B by the month of April 2024. As for non-resident customers’ deposits, grasping 20.21% of total liabilities, they recorded a drop of 2.69% and stood at $20.95B in April 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 231,909 checks by May 2023 to 92,687 checks by May 2024. However, the cumulative value of cleared checks in local currency increased from LBP 22,667B by May 2023 to LBP 32,076B by May 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 $1,943M by May 2023 to $681M by May 2024. Moreover, the volumes of cleared checks in Lebanese Pounds and foreign currencies witnessed substantial yearly drop of 51.51% and 84.35% respectively to settle at 83,274 and 9,413 checks, by May 2024. Accordingly, the dollarization rate of checks in terms of volume fell from 25.94% in May 2023 to 10.16% in May 2024. Notably, the number of returned checks dropped substantially by 75.23% YOY to stand at 507 checks. Finally, on a monthly basis, a total number of 2,557 fresh checks were issued in May 2024, surpassing the previous month’s figure of 1,915. Notably, the total number of fresh checks is increasing on monthly basis since the introduction of this new clearing system, revealing that there is a growing demand for fresh checks among businesses.
Elsewhere, according to Cadastre, to the data from the General Directorate of Land Registry and Cadastre (LRC), the cumulative number of real estate (RE) transactions reached 12,950 valued at $1.64B by May 2024, calculated at the new official rate of USD/LBP 89,500 starting February 1st, 2024. On a monthly basis, the number of RE transactions stood at 3,589 in the month of May 2024, compared to 2,718 transactions in April 2024 and 793 transactions in May 2023. In details, North region holds the biggest share of real estate transactions at 900, or 25% of total RE transactions, followed by Zahle at 792 transactions or 22% of total RE transactions. Furthermore, South region grasped 20% of total RE activity in May 2024 while Beirut held 347 transactions or 10%. Noting that no RE transaction was recorded in the area of Metn for the month of May 2024. Moreover, the value of real estate transaction reached $253.39M in May 2024 out of which Beirut grasped the lion’s share of the total value, equivalent of 37% and worth $93M, while Keserwan followed, constituting 18% of the total and worth $46M.
On June 4th, 2024, the Lebanese Ministry of Finance (MoF) released decision No. 647/1, based on article #93 of the 2024 Lebanese Budget Law (law 324), which stipulated that profits made on Sayrafa transactions in 2021, 2022, and 2023 will be taxed at the rate of 17% except for public sector employees who withdrew their salaries in USD at Sayrafa rate. Sayrafa transactions are transaction where natural and legal persons were able to exchange their Lebanese pounds by USD bank notes at an exchange rate displayed at Sayrafa platform revealed by the Central Bank, which is below the parallel market exchange rate. The two main reasons behind allowing natural and legal persons perform Sayrafa operations is to improve marginally the purchasing power of public sector employees including armed forces that are estimated at around 340,000 employees. Second, it helps the Central Bank absorb a huge amount of the Lebanese pounds circulating in the market in order to lessen the depreciation of the Lebanese pounds against the US dollar. Total Sayrafa transactions executed since the issuance of the circular till its expiry (i.e. from 16/12/2021 till 31/07/2024) recorded around $25 billion. MOF’s decision exempts Sayrafa transactions that do not exceed 15,000 USD per person over the entire period. We estimate these transactions by assuming – quite reasonably — that these are the Sayrafa transactions that would have been made by public sector employees over the 20 month period. Given an estimated size of public employees of 340,000, then the total exemption would amount to 5,100 million USD, leaving net total Sayrafa transactions at around $20 billion. As such, it is calculated that net profits made would be 2,560 million USD and the net taxes to be collected on them would be 435.2 million USD. The government could use these tax revenues for multitude of purposes, not the least as part of the Deposits Recovery Fund. Also, the exemption relieves a lot of limited-income people from the burden of the tax.
As such, BLOM Lebanon PMI showed signs of contraction since the beginning of the year with the headline PMI index reaching 47.8 in June 2024 down from 49.4 in January 2024. More specifically, the reason behind the drop is the decrease in output and new orders. The decrease in the purchasing power of most Lebanese citizens and the economic and security uncertainty are negatively affecting expenditure and new business activities. In addition, the regional turmoil and the disruptions in the Red Sea are weighing on new export orders for the eleventh month in a row. Unfortunately, latest PMI survey revealed also the highest level of pessimism regarding the upcoming 12 months as tensions along Lebanon’s southern border with Israel are likely to remain high for the near future. Nevertheless, despite the fall in PMI, employment in the private sector stabilized and in line with the trend since early 2023 – a positive indicator amid all the gloom!