BLOM Lebanon PMI: Macro highlights – June 2021

According to the latest World Bank Lebanon Economic Monitor, “Lebanon Sinking: To the Top 3”, the economic and financial crisis is likely to rank in the top 10, possibly top 3, most severe crises episodes globally since the mid-nineteenth century”. In terms of numbers, the “World Bank estimates that in 2020 real GDP contracted by 20.3 percent, on the back of a 6.7 percent contraction in 2019. In fact, Lebanon’s GDP plummeted from close to US$55 billion in 2018 to an estimated US$33 billion in 2020, while GDP per capita fell by around 40 percent in dollar terms. The effect on prices has resulted in surging inflation, averaging 84.3 percent in 2020. Subject to extraordinarily high uncertainty, real GDP is projected to contract by a further 9.5 percent in 2021”.

As for Lebanon’s monthly inflation rate, it soared from 46.6% in April 2020 to reach a dramatic level of 110.24% in April 2021. Accordingly, all sub-components of Lebanon’s consumer price index (CPI) increased over the studied period, where average prices of “water, electricity, gas, and other fuels” increased by 87.03% YOY, that of “Food and non-alcoholic beverages” (20% of CPI) surged by 207.78% yearly, and costs of “Clothing and Footwear” (5.2% of CPI) surged by 347.53% by April 2021.

On the fiscal side, the deficit retreated by 53.58% y-o-y to $2.71B by December 2020. The deficit was characterized by an annual 8.02% drop in government revenues (including treasuries) which fell to $10.17B by December 2020. On the counterpart, total expenditures (including treasuries) retreated yearly by 23.75% to $12.88B by end of year 2020. As such, Fiscal revenues recorded a yearly drop by 13.88% to stand at $9.07B. Tax revenues (constituting 76.54% of total revenues) retreated by an annual 16.44% to $6.94B by year 2020. Revenues from VAT (17.80% of total tax receipts) dropped by 42.79% y-o-y to $1,24B. Important to note, that the revenues from Real Estate registration fees soared annually by 109.53% from $348.42M in year 2019 to $730.03M in year 2020. This upsurge can be attributed to the increase in real estate transactions by the time depositors’ activity reflected the continuous migration of their deposits out of the banking sector towards real estate.

Moreover, data released by the Ministry of Finance (MoF), indicated that Lebanon’s gross public debt hit $96.82B in the second month of 2021, thereby recording an annual increase of 5%. The rise is mainly attributed to the annual increase in both local and foreign currency debt by 3.78% and 7%, respectively. In details, debt in local currency (denominated in LBP) stood at $60.37B in February 2021. As such, domestic debt constituted 62.35% of the total public debt. Meanwhile, total debt denominated in foreign currency (namely in USD) reached $36.45B over the same period. The public debt for Lebanon may not see refrains for the coming period as, for one thing, the State Electricity Company is still being subsidized by BDL through a request from the Lebanese government.

As for the BDL’s Balance sheet, foreign assets (grasping 13.24% of total assets) decreased by 37.04% YOY to stand at $20.84B by Mid-June 2021. On the liabilities front, financial sector deposits (68.32% of BDL’s total liabilities) recorded a downtick of 3.60% YOY to settle at $107.54B by mid of June 2021, of which more than two thirds are denominated in dollars. Looking at Currency in Circulation outside of BDL (17.01% of BDL’s total liabilities) it increased from $12.39B at mid-June 2020 to $26.77B in mid-June 2021.

It is worth mentioning, that BDL published earlier last month its circular 158 that provides binding instructions to banks to pay back gradually their customers’ foreign currency deposits. The circular applies to all accounts opened before 31/10/2019 and calculated based on the accounts as of 31/3/2021. The circular requires banks to pay monthly $400 to account holders, in addition to $400 in LBP at the price of the “Sayrafa Platform” paid half as cash and half as credit. The liquidity needed to execute the Circular will be sourced equally from required reserves at BDL and from banks’ deposits with correspondent banks. The Circular will be effective starting 30/6/2021, and will be applicable for one-year subject to renewal.

On a related note, Balance of Payment (BOP) recorded a cumulative deficit of $1,393.1M by April 2021, compared to a deficit of $1,302.8M over the same period last year. Accordingly, Net foreign Assets (NFAs) of BDL fell by $2,370.3 M, while the NFAs of commercial banks added $977.2M for April 2021. On a monthly basis, the BOP deficit stood at $546M, as NFAs of BDL and Commercial banks fell by $515.9M, and $30.1M, respectively.

Moreover, during the first month of 2021, Lebanon’s trade deficit totaled $732.5M, narrowing from the $820.5M registered in the same month last year. In fact, total imported goods retreated by 20.6% year-on-year (YOY) to $916.45M. This may be attributed to the deterioration of the Lebanese purchasing power, due to the catastrophic depreciation of the national currency against the dollar. Meanwhile, Lebanon’s total exports retreated by 44.8% YOY to $183.88M in January 2021.

The total assets of Lebanese commercial banks decreased by 1.87%, year-to-date (y-t-d), and stood at $184.52B in April 2021, according to Lebanon’s consolidated commercial banks’ balance sheet. In details, resident customers’ deposits (which grasp 58.31% of total liabilities) decreased since December 2020 by 2.39% to $107.59B in April 2021, with deposits in LBP down ticked by 2.81% to $23.74B while the deposits in foreign currencies declined by 2.28% to stand at $83.85B. As for Non-resident customers’ deposits grasping 14.54% of total liabilities, recorded a drop of 1.92% and stood at $26.82B over the same period. More importantly, the dollarization ratio for private sector deposits increased from 78.94% in April 2020 to 80.43% in April 2021.

The BLOM Lebanon PMI for month of April is at 47.5, slipping from May’s 19-month high PMI, indicating a decline in output and new orders and a weakening of the Lebanese pound in the parallel market. Moreover, PMI showed a softer decrease in the trends in both output and new orders since October 2019, yet with a PMI still hitting lower than 50, with negative expectations regarding prospects in the future. Alternatively, the government is launching the “Financing Card” in order to support families that are severely disadvantaged by the crisis, yet at a time when BDL foreign currency reserves have dwindled to around $15 billion. In this context, we hope that a new government is formed and takes larger and durable steps in implementing the country’s necessary and long overdue economic reforms

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