Headlines Tell the Story of Lebanon’s Economic Decline
A review of the headlines in the latest Byblos Bank report produced by its Economic Research & Analysis Department provides a quick overview of the erosion in Lebanon’s economy. For example, the quality of living index for select Arab cities measured this past month puts Lebanon in front of only Cairo and Casablanca, third from the bottom, having dropped 14.2% in the past two years. In cost of living, on the other hand, Beirut ranks second highest among Arab cities. While some may think that the fact that the currency in circulation is up 67% is good news, it only reflects the lack of dollars in the system as the Central Bank prints more liras while their value has diminished upwards of 80%. So it’s a smoke and mirrors of more is less.
Revenues through the port of Beirut are down 41% in the first four months of 2020, and the Central Bank (BDL) is preparing to support some 300 essential imported items by making dollars available for their purchase. Hotel room yields, that is, the profitability based on occupancy, is down some 86% in the first five months of this year, and real estate transactions, considered a safeguard against the falling lira, are up 24% in the first half of 2020.
These numbers and many more paint a picture of deterioration that complicates the steps needed for recovery. Remedies based on credible reforms are part of an interlocking web of increased revenues, decreased expenditures, accessible cash flow, sustainable credit lines, and institutional creditworthiness that is extremely difficult to prioritize, not to mention reducing corruption, increased transparency, and an independent judiciary!
Two areas of consensus are injecting more capital liquidity into the banking sector to help depositors and enable reliable transactions; and generating more funds for poverty relief and an adequate social safety net including reasonably priced and available foodstuffs and consumer items, funded in the short term through international donors. This would also include strategies to boost private sector growth to generate jobs.
In another sign of the times, the Syndicate of Private Hospital Owners are preparing to sue the government to receive the roughly $300 million in back payments approved by the Parliament three months ago. These reflect services provided to the Ministry of Public Health, the LAF, and ISF for 2019. Given the rising costs over the past year, the current rate does not cover the costs of hospitalization and the vanishing supplies of medicines and equipment which are 60-70% higher that the prices established by the rate-setting bodies. According to the owners, the current rate for an overnight stay including the room, food, and basic medicines and supplies is around $10 at today’s currency value. Given that most suppliers are only dealing in dollars, many of the supplies have been added to the CBL support list for critical imports. The Ministry of Finance gave the go-ahead for another $6 million in arrears to be paid to additional 2019 dues.
On the heels of a claim that bankers permitted upwards of $6 billion to leave the country since the demonstrations began in October while simultaneously refusing withdrawals by small and medium depositors, Bank of America critiqued the current state of the financial sector. It noted that fiscal revenues had decreased some 9.1% annually in the first four months of 2020 while spending was largely unchanged. It also estimated that the budget deficit would be some $800 million larger than that projected by the government. There is a mixed blessing expected from the opening of Beirut International Airport…more dollars into Lebanon with expats returning home, and emigration out for those who have alternatives outside of the country.
Finally, it is instructive to check the trade tally for the first five months of 2020. Almost all of Lebanon’s exports were down, except for a 20% rise in the exports of gold and jewelry, and a 37% rise in shipments of agricultural products. Switzerland took 92% of the exports of gold while Egypt absorbed 16.8%. Most of the agricultural exports went to the Gulf States.
So let’s look at these numbers through the eyes of the rapidly disappearing middle class Lebanese. People with large deposits in the banks are able to get their money out of the country since there are no formal restrictions at this time. Meanwhile, those with a middle class income can no longer withdraw funds to pay for their children’s schooling, their parents medications, or necessary consumer items. Gold is leaving the country legally. Agricultural goods are exported while Lebanese are going hungry. Now now that the lira is so cheap, the costs of vegetables and fruits are very attractive to overseas buyers who can pay more than the local consumers.
A very hot summer indeed.