Lebanon’s private sector deteriorated in August as the Purchasing Managers’ Index (PMI) dropped from 48.3 in July 2024 to 47.9 in August 2024. Although, there was hope that Lebanon’s private sector will improve in August taking advantage of the tourism season. However, the escalation of the military activities on the southern border of Lebanon caused many tourists and Lebanese living abroad to cut their vacations and go back to their countries of residence especially that most foreign flight companies ceased their trips to Lebanon. In addition, those who were planning to travel to Lebanon mid and end of August changed their plans and did not come to Lebanon with some exceptions of Lebanese who didn’t visit Lebanon since years ago and wanted to spend some time with their families. Therefore, this resulted in decrease in output and new orders.
That said, the activity at Rafic Hariri International Airport has decreased in July 2024 for the 7th consecutive month due to the prolonged conflicts on the Lebanese southern border. As such, the cumulative count of passengers at Beirut international in July 2024 dropped by 8.39% annually, reaching 3,747,297 passengers. The breakdown of the airport’s statistics revealed that total arrivals declined by 8.31% year-on-year (YOY) to stand at 1,957,800 passengers by July 2024 compared to 2,135,210 passengers by July 2023. Likewise, number of departing passengers decreased by 8.26% on yearly basis to reach 1,786,073 passengers by July 2024, compared to 1,946,786 passengers by July 2023. Moreover, transit passengers dropped from 8,406 passengers in July 2023 to 3,424 passengers in July 2024. Nonetheless, the monthly statistics showed a rise of 6.61% from June to July 2024 as the summer season started. In more details, arrivals increased by 1.13% to stand at 411,302 passengers, departures rose by 14.11% to stand at 338,968 passengers and transit grew by 14.47% to stand at 704 passengers by July 2024.
Moreover, according to the Ministry of Tourism’s data, the number of incoming visitors witnessed an annual drop of 16.12% in June 2024, reaching 630,075 by June 2024. This drop is due to the security situation along Lebanon’s southern border and ongoing Israeli attacks on Lebanese territory. Indeed, many countries urged their citizens not to travel to Lebanon due to the deteriorating security situation. The breakdown of statistics by the Ministry of Tourism reveals that the number of tourists from the top three destinations recorded considerable downticks. In details, Europeans grasped the lion’s share of 38% of the 2024 total number of tourists till June 2024. Travelers from the Arab countries came in second, grasping a share of 27% while American tourists constituted 20% of the 2024 total number of tourists till June 2024. In more details, the number of European tourists dropped by 19.91% year-on-year (YOY) to 241,537 by June 2024. Furthermore, the number of tourists from the Arab countries declined by 12.36% YOY to reach 171,881. Lastly, tourists from the American continent fell by 19.78% YOY to reach 125,496 visitors by June 2024.
Additionally, total container activity at Port of Beirut including transshipment (TEU+TS) decreased by a yearly 5.09% to stand at 371,959 twenty-foot equivalent unit (TEU) for the month of June 2024, with transshipment activity (TS) lessened 12.66% YOY to 110,265 TEU, and container activity (TEU) dropped by 1.49% on a yearly basis to 261,694 TEU by June 2024. On a monthly basis, total container activity increased by 2.79% to stand at 76,949 twenty-foot equivalent units (TEU). In more details, container activity (TEU) rose 15.76% for the month of June 2024 compared to same month last year to reach 53,373 TEU while transshipment activity (TS) dropped by 18.01% to 23,576 TEU for the month of June 2024.
In addition, according to the Central Administration of Statistics (CAS), the Consumer Price Index (CPI), representing the evolution of goods and services’ prices consumed by households, revealed that Lebanon’s annual inflation rate fell to 35.37% in July 2024, from 41.78% in June 2024, recording its lowest level since March 2020. The decrease resulted from the increase of dollarization rates by businesses and to the stability of the exchange rate especially since August 2023. Meanwhile, the continued escalating political and military tensions in the Middle East and its effect on Red Sea sea-shipping traffic threatens to disrupt supply chains, which will increase shipping costs, and consequently lead to an increase in inflation. In details, it is worthwhile to note that Education (6.6% of CPI) increased by 587.67% YOY due to the dollarization of education fees while furnishings, household equipment and routine household maintenance (3.8% of CPI) decreased by around 9% YOY during the same period.
According to the balance sheet of Banque du Liban (BDL), the central bank’s total assets declined by 8.77% annually, to reach $94.5B by the first half of August 2024, amid adopting the 89,500 LBP/USD official rate by BDL since February 1st 2024. The fall was mainly due to the 97.49% year-on-year (YOY) drop in other assets, which reached $170.69M by the first half of August 2024. Furthermore, the gold account, representing 24.12% of BDL’s total assets, increased by 29.16% yearly to reach $22.79B by the first half of August 2024. Moreover, BDL’s foreign assets, consisting of 16.48% of total assets, rose by 12.52% YOY and stood at $15.58B by the first half of August 2024. Additionally, BDL holds in its foreign assets $5B in Lebanese Eurobonds; note also that foreign assets increased by $129M in the first two weeks of August 2024. On the liabilities front, financial sector deposits, representing 92.11% of BDL’s total liabilities, decreased by 2.36% and reached $87.04B by the first half of August 2024 compared to last year, of which more than 90% are denominated in dollars. Moreover, public sector deposits, representing 5.66% of BDL’s total liabilities, dropped by 35.63% yearly and reached $5.35B by the first half of August 2024. Lastly, currency in circulation outside of BDL, consisting of 0.71% of BDL’s total liabilities, plunged by 83.8% annually to reach $666M by the first half of August 2024 amid adopting the 89,500 LBP/USD official rate by BDL.
As per BDL’s latest monetary report, the balance of payments (BOP) recorded a surplus of $363M by June 2024, far less than the surplus over the same period last year of $1,143M. Accordingly, Net Foreign Assets (NFAs) of BDL rose by $605M and the NFAs of commercial banks decreased by $242M by June 2024.
Also, according to Lebanon’s consolidated commercial banks’ balance sheet, total assets declined annually by 10.4% to stand at $104.32B by June 2024 amid BDL’s adoption of a new exchange rate of LBP 89,500 per USD. On the assets side, currency and deposits with Central Bank represented a high figure of 78.38% of total assets; they dropped annually by 5.21% to settle at $81.76B in June 2024. Deposits with the central bank (BDL) represented 99.88% of total reserves, and decreased by 4.2% YOY, to reach $81.66B in June 2024. Furthermore, vault cash in Lebanese pound declined by 90.03% on a yearly basis to stand at $100.71M 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 5.49% of total assets, shrank considerably by 29.11%, to stand at $5.73B in June 2024. Moreover, resident securities portfolio, representing 4.49% of total assets, dropped by 41.26% in June 2024 to stand at $4.68B. More specifically, the Eurobond holding recorded a decline of 18.96% since June 2023, to reach $2.26B (net of provisions) by end of June 2024. Additionally, claims on non-resident financial sector grew by 0.8% YOY to stand at $4.41B by June 2024. On the liabilities side, resident customers’ deposits were the main account, representing 66.11% of total liabilities; they dropped by 7.83% since June 2023 to reach $68.97B by the month of June 2024. In more details, deposits in foreign currencies (being 99.07% of resident customers’ deposits) declined by 3.27% YOY to reach $68.33B by June 2024, additionally deposits in LBP (0.93% of resident customers’ deposits) fell by 84.73% YOY to stand at $639M by June 2024 especially after applying the new official exchange rate of 89,500. This reveals that Lebanon has become highly dollarized and cash based, as the dollarization ratio for private sector deposits increased from 95.37% in June 2023 to 99.23% in June 2024. As for non-resident customers’ deposits, grasping 20.14% of total liabilities, they recorded a drop of 2.23% and stood at $21.01B in June 2024. In details, the deposits in LBP fell by 84.69% to reach $32M and deposits in foreign currencies declined by 1.42% to reach $20.98B over the same period. In addition, non-resident financial sector liabilities held 2.55% of total liabilities and decreased by 19.18% YOY to reach $2.66B in June 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 298,043 checks by July 2023 to 123,460 checks by July 2024. However, the cumulative value of cleared checks in local currency increased from LBP 36,174B by July 2023 to LBP 47,579B by July 2024. This upsurge in value of Lebanese checks still reflects a larger percentage of discounting Lebanese checks in the market. However, the cumulative value of cleared checks in foreign currency dropped from $2,402M by July 2023 to $868M by July 2024. Moreover, the volumes of cleared checks in Lebanese Pounds and foreign currencies witnessed substantial yearly drop of 50.38% and 83.88% respectively to settle at 111,709 and 11,751 checks, by July 2024. Accordingly, the dollarization rate of checks in terms of volume fell from 24.46% in July 2023 to 9.52% in July 2024. Notably, the number of returned checks dropped substantially by 72.63% YOY to stand at 693 checks. Moreover, the value of returned checks in foreign currency decreased by 81.44% by July 2024 to reach $27.47M; additionally, the value of returned checks in local currency decreased by 58.5% YOY to reach LBP 210B in July 2024. On a monthly basis, a total number of 3,486 fresh checks were issued in July 2024, more than the previous month’s figure of 2,259.
Furthermore, according to the data from the Orders of Engineers in Beirut and Tripoli, the total construction permits witnessed a year-on-year (YOY) decrease of 3.2% to reach 5,782 permits by July 2024 due to several reasons such as 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. However, the Construction Area Authorized by Permits (CAP) increased by 27.72% to record 3,076,357 square meters (sqm). This could be explained by the increased tendency for group projects rather than individual projects. Moreover, construction activity witnessed some fluctuation compared to last year. Some governorates witnessed an increase such as Bekaa, Beirut and North Lebanon while other governorates’ activity decreased like Nabatiye, South Lebanon and Mount Lebanon. Across the governorates, Mount Lebanon grasped 36.56% of total permits, and accounted for 2,114 permits in July 2024 compared to 2,273 in July 2023. Regarding South governorate, it came second and represented 25.08% of total permits; its number of permits recorded 1,450 permits compared to 1,675 in July 2023. In Nabatieh, 930 permits were registered in July 2024, representing 16.08% of total permits, compared to 1,174 permits in the previous year. Furthermore, Bekaa governorate followed with 820 permits and representing 14.18% of total permits in July 2024, compared to 530 permits in July 2023. Beirut governorate’s share of permits was 4.51% with 261 permits only compared to 179 permits in July 2023.
Additionally, according to the data from the General Directorate of Land Registry and Cadastre (LRC), the cumulative number of Real estate (RE) transactions reached 19,693 valued at $2,127M by July 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 3,303 in the month of July 2024, compared to 3,440 transactions in June 2024 and 871 transactions in July 2023. In details, the North region holds the biggest share of real estate transactions at 800, or 24.22% of total RE transactions (3,303), followed by the South region (22.74% of total RE transactions), Zahle (21.31%) and Beirut (13.11%). Moreover, the value of real estate transaction reached $231.49M in July 2024 out of which Beirut grasped the lion’s share of the total value, equivalent of 54.78% and worth $127M, while the South followed, constituting 20% of the total and worth $46M.
On a different note, two developments are worth mentioning. First, Lebanese Council of Ministers in its meeting on August 14th, 2024, approved Ministry of Finance’s request to apply an exchange rate for the US dollars for the purpose of recording revenues and expenses of the ministry in its treasury accounts and the release of financial statements. It used the official rate applied by BDL for local dollars and Sayrafa rate or any rate applied by the Central Bank for fresh dollars starting August 1st, 2022.
Second, Standard & Poor’s (S&P) rating maintained its rating on Lebanese pound bonds at SD (Selective Default) for Foreign Currency and at CC for Long-Term Local Currency, with a negative long-term outlook. S&P’s rationale for the ratings is partly due to Lebanon’s dysfunctional political environment and external security risks weigh on institutional effectiveness. S&P pointed out that following the Lebanese government’s default on its foreign currency obligations in March 2020, the fragmented political environment, limited legal capacity of the caretaker government to enact legislation, and delays in appointing key officials, including a new president and permanent BDL governor, slowed down the economic recovery process. Moreover, the Israel-Hamas war and the Israel-Hezbollah exchange of fire at the Lebanese southern borders increased Lebanon’s security risks. Lastly, S&P declared that it would raise the foreign currency’s rating from SD, after the completion of the government’s commercial debt restructuring. As for the local currency’s negative outlook, S&P said that it is the result of the lack of restructuring for the local currency’s debt and the shortcomings in public sector administrative capacity.
In conclusion, the Purchasing Managers’ Index (PMI) for August 2024 revealed a decrease from 48.3 in July to 47.9, thus reflecting faster deterioration. What is more unfortunate is that the Lebanese private sector has lost confidence regarding future business outlook due to the prolonged political deadlock and conflict at the Lebanese southern border. This unstable security situation at the southern border is accompanied with political stagnation revealed by the inability to elect a new president, followed by formation of a new government that has full legal capacity to take decisions and enact legislation. In addition, there is absence of significant reform plans after five years of the severe blow from the financial crisis.
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