Lebanon started the third quarter on a positive note. Lower imports and improving tourism activity contributed to quasi-economic stability in the private sector in addition to the signs of recovery in private consumption largely supported by higher tourist spending and remittance inflows. Meanwhile, weaker Lebanese currency and higher number of Lebanese expatriates would boost tourism in the coming months. Hence, restoration of diplomatic relations with the Gulf countries is crucial to offset any potential growth of imports. On the political side, discussion of maritime border between Israel and Lebanon are optimistic, as an agreement could be reached later this month. In addition, Lebanese parliament adopted amendments to banking secrecy law that allows secrecy to be lifted only in case of probes into crimes involving public money and terrorism financing but it seems that these modification could not be enough to meet IMF conditions. In fact, delays in securing final agreement with the IMF would weigh on the national currency and lead to further deterioration in economic conditions as foreign currency reserves of the Central Bank are diminishing.
Accordingly, the tourism sector was more robust marked by outstanding improvements amid the resumption of normal activity and the easing of pandemic restrictions in Lebanon. Cheaper Lebanon brought back strong tourism activity by March 2022. As such, the breakdown of statistics by the Ministry of Tourism revealed that the number of incoming visitors witnessed an annual increase of 155.77% reaching 212,950 visitors by March 2022, compared to only 83,260 by March 2021, 194,395 by March 2020. In tandem, the activity at Rafic Hariri International Airport improved remarkably for the first half of the year. Consequently, the number of Beirut’s International Airport passengers went up by 77.88%, and recorded 2,567,872 passengers by June 2022 compared to 1,443,580 passengers during the same period last year. Total arrivals jumped by 78.55% yearly to stand at 1,304,649 by June 2022 while number of departing passengers climbed by an annual 83.90% to stand at 1,247,684 over the same period. Nevertheless, transit passengers decreased from 34,418 by June 2021 to 15,539 transit passengers by June 2022.
Lebanon is still facing historical high inflation rates driven by high volatility in prices due to worldwide elevated energy prices as well as the devaluation of the national currency. As such, Lebanon’s monthly inflation rate jumped from 100.64% in June 2021 to register 210.08% in June 2022. In details, the cost of “Housing and utilities”, inclusive of water, electricity, gas and other fuels (grasping 28.5% of the CPI) added a yearly 132.28% by June 2022. Also, “Owner-occupied” rental costs increased by 6.21% year-on-year (YOY) and the average prices of “water, electricity, gas, and other fuels” followed a significant increase by 594.46% on a yearly basis as subsidies were removed by the Central Bank and prices went up sharply on the global market due to the war in Ukraine.
Real estate transactions witnessed an annual jump of 43% to reach 32,288 transactions by the month of April 2022. In its turn, the value of total RE transactions stood at $4.47B by April 2022, compared to $3.54B in the same period last year, up by 26.23%. In fact, the Real Estate market followed a correction by registering a substantial increase in transactions in the years of 2021 and 2022 mainly driven by post-stagnation period due to the crisis. Demand went up as there was a glut of housing available in the market and no loans and facilities; prices dropped due to less demand in the market which stimulated the consumers’ behavior. However, favorable increase in demand would push prices a bit higher and thus would cool down the market.
In terms of the balance sheet of Banque du Liban (BDL), the central bank’s total assets added 6.64% compared to last year, to reach $169.41B by the end of July 2022. The increase was mainly due to the 27.75% year-on-year (YOY) rise in other assets, grasping 41.60% of BDL’s total assets and reaching $70.48B by end of July 2022. Nevertheless, the gold account, representing 9.60% of BDL’s total assets, recorded a drop of 3.58% YOY to reach $16.26B by the end of July 2022. Meanwhile, BDL’s foreign assets which grasp 8.95% of total assets recorded a decrease of 24.37% YOY and 14.94% YTD; however, it registered an uncommon increase of 0.38% for the last two weeks of July to stand at $15.17B by end of the month though $5B of those are in Lebanese Eurobonds. The increase could be attributed to the fact that the Central Bank has absorbed a bigger amount of foreign currencies from the market compared to the amount traded through Sayrafa platform. For instance, total volume of dollars injected into the market through Sayrafa totaled $232M whereas the foreign assets of BDL expanded by $57.18M during the last two weeks of July. Despite the insignificant uptick, we stick to our opinion regarding the process of Sayrafa to which it is very costly and would lead to the ongoing diminishing of the foreign reserves of the Central Bank under full absence of any reform plan.
The data published by the association of Lebanese Banks’ showed that the total number of cleared checks in the Lebanese financial system slumped from 1,881,673 checks by June 2021 to 1,013,924 checks by June 2022. Consequently, the value of total cleared checks decreased yearly by 18.07% to reach $16.88B by end of June 2022. In more details, the value of checks in LBP increased remarkably from $9.22B by June 2021 to reach $11B by June 2022, while value of checks in foreign currencies decreased significantly by 48.34% year on year (YOY) to reach $5.87B by June 2022. Accordingly, the dollarization rate of checks in terms of value declined from 55.23% in June 2021 to settle at 34.82% by June 2022. In the same token, the dollarization rate of checks in terms of volume fell by June 2022, to reach 48.18% instead of 54.28% by June 2021.
Moreover, data released by the Ministry of Finance (MoF) recently indicated that Lebanon’s gross public debt hit $99.98B in February 2022, thereby recording an annual increase of 3.2%. The rise is mainly attributed to the annual increase in both local and foreign currency debt by 0.81% and 7.3%, respectively. As such, domestic debt constituted 60.88% of the total public debt.
It is worth noting that BOP recorded a deficit of $2.57B by June 2022, compared to a deficit of $1.81B over the same period last year. Accordingly, Net foreign Assets (NFAs) of BDL fell by $2.79B, while the NFAs of commercial banks added $214M by June 2022.
As for Lebanon’s consolidated commercial banks’ balance sheet, total assets decreased by 2.29% YTD and 5.61% YOY to stand at $170.92B by June 2022. In more details, deposits in foreign currencies (77.85% of resident customers’ deposits) decreased by 3.92% YTD to reach $97.98B by June 2022, while deposits in LBP (22.15% of resident customers’ deposits) increased notably by 7.36% YTD to stand at $27.88B by June 2022.
Amid these developments, BLOM Lebanon PMI jumped from 49.1 in June to 49.9 in July, the highest level since June 2013. Crucially however, the PMI is still below 50 and highlights struggles among the private sector, but overall, the index increased gradually with softer pace of deterioration. Surprisingly, while global growth is contracting and signs of recession are front and center, Lebanon PMI recorded higher marks than the 49.8 Eurozone Manufacturing PMI compared to 52.1 in June. The downturn in Eurozone PMI was the sharpest outside the pandemic era and since the Eurozone sovereign debt crisis in 2012. However, back to Lebanon, major headwinds to growth persist while financial conditions, market volatility and rising political risks would pose further downside risks to Lebanon’s outlook. But, till now tourism spending and expected growth of exports as well as optimistic expectations if an agreement with the IMF is secured would drive recovery in private sector and, perhaps, we would see anytime soon the PMI above the expansionary 50 mark.