BLOM Lebanon PMI: Macro highlights – March 2021

Concerning the Lebanese economy and its ongoing challenges within the sovereign, banking, economic and exchange rate calamities, the widespread anti-government protests continued during month of March 2021. In details, the failure to stop the devaluation of the currency and increasing poverty rate as well as citizens’ lacking their basic needs, such as security, education, water and electricity, had resulted in a more severe economic downturn; especially since the country remains without a government for more than six months. As a consequence, we observe a rise in the unemployment rate of more than 30% and an upsurge in the cost of living of more than 140%.

The political instability and closure of the country during lockdown were reflected in the retracted airport activity by 65.91% in February 2021. In details, total arrivals dropped by an annual 70.33% reaching 134,471 passenger arrivals. By the same token, departures decreased by 62.49% (YOY) to 201,881 passengers; with no faith in improvement as the world is still struggling from the pandemic. Moreover, data on occupancy as per E&Y benchmark survey revealed that the occupancy rate at Beirut’s 4 and 5 stars’ hotels fell to a low of 18% by December 2020 and the average room rate rose by 134.4% by end of year 2020.

Furthermore, Real sector is experiencing the same trend by end of year 2020, as uncertainty shadows over the Lebanese economic environment. Data from the Orders Engineering in Beirut and Tripoli, show that the total construction permits witnessed a year-on-year (YOY) downtick of 0.43% to reach 11,015 permits by December 2020. However, the Construction Area Authorized by Permits (CAP) slumped by an annual 24.06% to 4.60M square meters (sqm), mainly reflecting the little interest of investors in launching real estate projects. Likewise, the reduced purchasing power of customers as well as the ceasing loans from the Lebanese banks has affected the lending process. From here, we also note that the values of “Vehicles, aircraft, vessels, transport equipment” recorded yearly drop of 64.17%, this decrease is explained by the big reduction in car sector and the demand for cars in Lebanon, which naturally dropped in this ruthless economic situation. In details, passenger cars dropped by 96.70% yearly to 62 and commercial cars declined by 94.44% during the same period to only 7 cars in February 2021. 

Amid financial meltdown and uncertainty in the Lebanese economic environment, the BDL Balance sheet showed that central bank’s total assets added 4.78% compared to last year, reaching $151.58B mid-March 2021. The increase was mainly due to the 14.39% rise in gold price. In fact, BDL’s foreign assets (grasping 14.87% of total assets) decreased by 36.95% YOY to stand at $22.54B mid-March 2021, mainly constituting of Eurobonds held by BDL and reserves that BDL possesses with foreign correspondents. On the liabilities front, financial sector deposits (71.06% of BDL’s total liabilities) recorded a downtick of 4.87% YOY to settle at $107.71B mid of March 2021, of which more than two thirds are denominated in dollars. Looking at Currency in Circulation outside of BDL (15.75% of BDL’s total liabilities) it increased from $9.1B mid of March 2020 to $23.87B mid of March 2021. In fact, depositor’s preference for cash is growing amid the uncertainty and lack of trust in the economy. It is worth mentioning that with the persisting current situation, foreign currency reserves remain under major threat as it reaches dangerously low levels.

According to Lebanese Commercial Banks’ Balance sheet, total assets increased by 0.16%, year-to-date (y-t-d), to stand at $188.38B in January 2021, the increase mainly attributed to the banks application of the Central Bank’s circular 154 related to the increase of commercial bank capitals by 20% and increase of their liquidity by 3%. In details, resident customers’ deposits (which grasp 58.42% of total liabilities) decreased since December 2020 by 0.19% to $110.03B in January 2021, with deposits in LBP increasing by 0.93% to $24.66B while the deposits in foreign currencies declining by 0.50% to stand at $85.37B. It is important to mention that the dollarization ratio for private sector deposits increased from 76.70% in January 2020 to 80.20% in January 2021. Moreover, Claims on resident customers, constituting 16.68% of total assets, shrank by 1.13%, to stand at $31.40B in January 2021. The drop in the loans portfolio followed the early settlement of some loans from related customers’ deposits through a netting process in fear of a haircut on deposits or a formal devaluation of the currency.

Lebanon’s balance of payment deficit almost tripled on what is registered in January 2020 and stood at $410.6M for the first month of 2021. In details, Net Foreign Assets (NFAs) of BDL fell by $630.8M, while the NFAs of commercial banks added $220.2MB for January 2021. Moreover, the country has been plunged in a deepening deficit of the Balance of Payments due to a shortage in supply of the Foreign Currencies in the Lebanese market. This matter will not be resolved until the formation of a new government along with a tangible economic plan that will unlock IMF aid program. 

Lebanon’s trade deficit totaled $6.81B in November 2020, narrowing from the $14.48B registered in the same period last year. In fact, total imported goods retreated by 45.78% year-on-years (YOY) to $10.08 in November 2020. Meanwhile, Lebanon’s total exports declined by 4.31% YOY to $3.26B during the same period. In term of value, the “Mineral products” grasped the highest share of total imported goods with a stake of 28.71%; constituting mainly of Petroleum oils and Petroleum Gases. As a result, volume of imports is expected to further decline in the upcoming months due to foreign currency shortages, where BDL’s governor had announced that the support of the essential goods will not last for a long time.

The gross public debt in Lebanon is in continuous growth, increasing by 4.3% y-o-y to reach $95.6B at end of year 2020, thus pushing the debt-to-GDP ratio to its highest level. The rise is mainly attributed to 6.83% annual increase in foreign currency debt and to 2.8% in local currency debt. In details, debt in local currency (denominated in LBP) stood at $59.54B in December 2020. In fact, Lebanon is facing major financial and monetary crises asserting that a potential government must take key steps in order to decrease the budget deficit. In details, policymakers must set a rigorous plan in order to increase fiscal revenue by imposing an efficient tax policy. Further, Lebanese law enforcement must fight customs evasion which can improve customs revenues and set a clear debt restructure plan in order to gain the confidence of the foreign capital markets again.

It is important to point out that as a result of the unfortunate situation and deteriorating conditions, new immigration wave emerged, draining the brain capital of many professional resources. The medical sector is on the top of the list, dragging doctors outside the country as well as engineers re-allocating after companies started closing. Moreover, banking sector that had also been at the core of the crises, witnessed a dwindling in the number of its employees which decreased from 25,071 to 23,954 by mid-2020. Moreover, “Macrotrends” stated that the current net migration rate for Lebanon in 2020 increased by 47.19% compared to 2019.

The BLOM Lebanon PMI of March at 46.4, though higher than February, yet it confirms a negative outlook for the country, reflecting the severe declines in income, production and business expectations. Moreover, according to World Bank, the real GDP is projected to decline by 19.2 percent in 2020 and GDP-debt ratio is expected to reach 194 percent at end of 2020, compared to 171 percent end-2019. Moreover, the whole economic turmoil remains pending the IMF plan and restructuring of debt and of the banking system. In parallel, trading activities will remain tied to several decisions, prime among which are the formation of government, the resurgence in financial inflows, and the stability of the LBP/USD rate.

Top