Lebanon This Week 668

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Lebanon This Week 668

February 08, 2021

  • Remittance inflows to Lebanon down 20% to $3.1bn in first half of 2020
    Figures released by Banque du Liban (BdL) show that the inflows of expatriates' remittances to Lebanon totaled $3.1bn in the first half of 2020, constituting a decrease of 20% from $3.9bn in the same period of 2019 and a decline of 12% from $3.5bn in the second half of 2019. Remittance inflows in the first half of 2020 reached their lowest semi-annual level since 2007, compared to a semi-annual average of $3.6bn in the 2008-2020 period. The figures include workers' remittances and the compensation of employees, according to the World Bank's definition of remittances. Banque du Liban's figures are the only official data on remittance flows to and from Lebanon. 

    Remittance inflows to Lebanon reached $1.5bn and $1.6bn in the first and second quarters of 2020, respectively, constituting declines of 19.3% and 20.8%, respectively, from the same quarters of the previous year. The figures of the first and second quarters of 2020 constitute their lowest and second-lowest quarterly levels since the fourth quarter of 2007.

    In parallel, remittance outflows from Lebanon amounted to $1.6bn in the first half of 2020, and decreased by 32% from $2.4bn in the first half of 2019 and by 18.8% from $2bn in the second half of 2019. Remittance outflows in the first half of the year reached their fourth lowest semi-annual level since BdL started publishing detailed figures about the balance of payments in 2002. They posted a semi-annual average of $2.2bn between 2008 and 2020. Remittance outflows totaled $847.8m and $751.8m in the first and second quarters of 2020, respectively, representing decreases of 29% and 36%, respectively, from the same quarters of the preceding year. The figures of the first and second quarters of 2020 reached their lowest levels since the third quarter of 2007.

    As such, net remittance inflows to Lebanon totaled $1.5bn in the first half of 2020, constituting a decline of 0.8% from $1.51bn in the first half of 2019 and a decrease of 3.7% from $1.6bn in the second half of 2019. But they represented an increase of 31.2% from the semi-annual average of $1.1bn during the 2017-18 period. Net remittance flows posted a semi-annual average of $1.3bn between 2008 and 2020.
    Source: Banque du Liban, Byblos Research

  • Iraq to supply Lebanon with fuel oil for Electricité du Liban
    The Ministry of Energy and Water announced that Iraq will supply Lebanon with fuel oil for electricity generation. The agreement between the Lebanese authorities and their Iraqi counterparts stipulates that Iraq will export 500,000 tons of heavy fuel oil to Lebanon in 2021. 

    The agreement between Lebanon and Iraq came after the contract between the Lebanese State and the Algerian energy conglomerate Sonatrach to supply fuel oil to Lebanon expired on December 31, 2020, which raised concerns about sourcing fuel oil for electricity production in Lebanon.

    The ministry did not provide details about the quality of the imported fuel from Iraq. But it said that Iraq's heavy fuel oil does not match Lebanon's specific needs, and noted that an Iraqi company could arrange a swap for refined fuel that is more compatible with the needs of the market. In addition, payments to Iraq will reportedly consist of opening a special account at Banque du Liban that can be used by the Iraqi authorities to pay for local services, such as covering the cost of healthcare for Iraqi nationals at Lebanese hospitals.

    Electricité du Liban (EdL) imported 1.8 million tons of fuel oil in the first nine months of 2020, down from 5.4 million in the same period of 2019. However, the substantial decline in EdL fuel imports masks discrepancies related to the accounting of such imports in 2019. At the time, the Ministry of Energy & Water claimed that the elevated imports of mineral fuel and oil in 2019 were due to a surge in fuel imported on behalf of EdL, which reflected quantities that were imported in the past few years but that were officially registered as imports in 2019. The ministry claimed that actual fuel imports in the first 10 months of 2019 totaled 2.25 million tons, while 3.63 million tons that were additionally registered to EdL during the same period constituted fuel imports from previous years.

    In parallel, losses at EdL have constituted a burden on public finances for more than 20 years, requiring regular transfers from the Treasury and leading to wide fiscal deficits. The latest available figures show that Treasury transfers to EdL accounted for 8.7% of budgetary primary expenditures in the first eight months of 2020 relative to 13.7% in the same period of 2019, due to the drop in global energy prices. They constituted the third largest expenditures item, or 7.3% of overall fiscal spending after wages, salaries and benefits of public sector workers and debt servicing. Treasury transfers to EdL were equivalent to 5.1% of GDP in 2012, 4.3% of GDP in 2013, 4.4% of GDP in 2014, 2.3% of GDP in 2015, 1.8% of GDP in 2016, 2.5% of GDP in 2017, 3.2% of GDP in 2018, and 2.8% of GDP in 2019. Overall, transfers from the Treasury to cover EdL's losses totaled $23.1bn from 2001 to the end of August 2020.

    *data about EdL fuel imports is inconsistent, reflecting the weak statistical infrastructure in the country 

    data is for the first nine months of each year, except for Treasury transfers in 2020, which are for the first eight months 
    Source: Ministry of Finance, Lebanese Customs, Byblos Research 




  • Full-time employment in key private-sector industries down 23% in 2020
    The United Nations Economic and Social Commission for Western Asia (ESCWA) indicated that the Lebanese economy is in recession, which has resulted in higher unemployment and poverty rates. It indicated that the explosion at the Port of Beirut on August 4, 2020 has led to a significantly slower pace of private sector activity, which, in turn, weighed on overall economic activity. It anticipated a further contraction in private sector activity in 2021, in case of delays in the rollout of the COVID-19 vaccine and if authorities do not implement political and economic reforms.
    First, the survey indicated that private sector activity in Lebanon reached a significantly low level, as the pandemic led to a 45% drop in private sector sales in 2020 relative to 2019. It noted that sales in the wholesale & retail sector fell by 48% during the covered period, followed by sales in the transportation sector (-47%), the construction sector (-45%), manufacturing (-44.7%),  and at hotels & restaurants   (-41%). Second, it said that full-time employment in key sectors declined by an average of 23% in 2020 from the previous year. It pointed out that the construction sector lost 40% of its full-time employees, followed by the hotel & restaurants sector (-31%), and the manufacturing sector (-27%). It added that firms that were affected by the August 4 blast suffered higher job losses than companies that were not directly impacted by the explosion.

    Third, it noted that the COVID-19 pandemic resulted in lower demand for full-time employees in micro and small enterprises, as it estimated that micro enterprises and small firms laid off 50% and 20% of their full-time employees, respectively, in 2020. Fourth, it said that non-exporting companies registered lower sales and laid-off twice as many full-time workers as exporting firms. It noted that non-exporting firms lost more than 30% of their full-time jobs last year, while exporting firms laid off only 14% of their full-time employees in 2020 due to better-than-expected external demand. Finally, it indicated that tax revenues from all forms of private sector contributions declined by 17% in the first nine months of 2020, and expected this decrease to be significantly higher for full year 2020 due in part to the most recent tax deferrals granted by the government.
    Source: ESCWA, Byblos Research 

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