Analysis

Lebanon’s export orders rise for first time in two years

May 15, 2023

Lebanon business — Lebanon's slight fall in PMI hid improvements in export orders and increased employment

Increase reflects currency starting to stabilise
Growth with Gulf trading partners driving rise
Overall decline in demand in Lebanon’s private sector

In spite of an overall decline in business activity, Lebanon recorded an increase in its export orders during April owing to improved currency stability.

“Lebanon’s currency started to stabilise, particularly around mid-April,” Wael Menhem, a partner in the Beirut office of Lundy Investors, said.

“It’s the first time in a long time that the currency has been stable, which has led to more liquidity in the market and boosted business confidence.”

Menhem said that the support provided by Lebanon’s central bank through its exchange rate programme has been instrumental in stabilising the Lebanese pound.

On March 22 the central bank began selling unlimited amounts of US dollars in a bid to halt the spiralling devaluation of the domestic currency and set a new rate for Sayrafa, the central bank’s exchange platform, at LBP90,000 per dollar.

Nine days later the central bank announced it was extending the arrangement until the end of April.

Lundy's Wael Menhem — Wael Menhem, partner in the Beirut office of Lundy Investors

The rise in export orders marks the first increase since July 2021 and the joint-strongest in almost eight years, according to Blom’s Lebanon Purchasing Managers’ Index (PMI).

Dr Ali Bolbol, chief economist at Blom bank told AGBI that, in addition to the “favourable exchange rates”, the drivers behind the rise in new export orders were “higher growth with trading partners – notably the Gulf – and improved political ties with the Gulf”.

Menham also cited a pick-up in trading with Gulf countries, “particularly with the UAE, and Saudi Arabia”.

The increase occurred in spite of an overall decline in demand in the country’s private sector. The headline Blom Lebanon PMI edged lower to 49.5 in April, from March’s seven-month high of 49.7.

A PMI score above 50.0 signals an improvement in business conditions.

However, Dr Bolbol, said that the slight fall in PMI “hid some notable improvements”, highlighting the increased employment and purchases, in addition to lower input and output price inflation.

Lebanon exports — Business confidence rose to a 37-month high

Purchasing activity increased during April for the first time since July 2022, while employment levels rose for the second time in three months.

Lebanon has been in the grip of an economic crisis since 2019, leading hyperinflation to hit an annual rate of 264 percent in March.

While businesses remained pessimistic overall to the growth outlook, confidence rose to a 37-month high.

“It’s too early to say the economy is in recovery mode but we’re expecting to see more business activity ahead of and during the summer,” said Menhem.

“Lebanon has a large diaspora so we tend to get more dollar liquidity coming into the market in the summer season,” he said. “But we’re yet to see a structural improvement in the country’s economic conditions.”

Last October Lundy Investors launched a fund that enables Lebanese bank customers to reinvest their trapped savings in local exporters, generating new dollars, which will be repaid to investors.

The fund has $7 million in committed equity capital and $5 million in committed debt capital.

Bolbol said while the data shows that the Lebanese economy is slowly adjusting upwards, “only a credible and well-governed reform programme can move this adjustment faster and to a higher equilibrium level.”

Lebanon’s progress in enacting financial reforms required to unlock $3 billion in funding from the International Monetary Fund and other international donors has been stymied by its inability to form a new government.

“If a new president is elected by the beginning of the summer, we might see an agreement on a reform programme with the IMF by the fall,” noted Bolbol.

“Especially as the whole programme will be a package deal involving all outstanding political and economic matters.”