Banque Du Liban (BDL) recently published a new report titled “Balance of Payments and International Investment Position Report – 2024”. According to the report, the Balance of Payments (BOP) and International Investment Position (IIP) statistics were compiled by BDL’s External Sector Division (ESD) in accordance with the IMF’s Balance of Payments Manual (BPM5). BDL defined the IIP as a measure that records the economy’s financial assets and liabilities at a specific period. The BOP highlights trends in trade, income, transfers, and financial flows, while the IIP assesses Lebanon’s external wealth and its resilience to economic shocks. When added together, the BOP and IIP provide a foundation for “sound” monetary policy, investment strategy, and risk management. The report added that the ESD is preparing to shift its work to conform to the IMF’s Balance of Payments Manual (BPM7) and adopt the newly released methodology.

     I.        Components of the BOP:

1)    Current Account:

The report mentioned that Lebanon’s current account deficit attained $5.6 billion in 2024, 5% lower than the $5.9 billion deficit registered in 2023 and 25% lower than the deficit recorded in 2022. The improvement witnessed in 2024 was largely due to the 3% narrowing of the trade in goods deficit and a 9% drop in the net primary income deficit. The report added that the net inflow of services dropped by 43% in 2024 yet was slightly offset by a 9% rise in net current transfers, highlighting Lebanon’s ongoing reliance on remittances from the diaspora. The components of the current account are shown below:

-       Goods account: the goods deficit reached $12.3 billion in 2024, down by 3% when compared to 2023 results and by 10% compared to 2022. The report noted that this improvement mainly comes from a 4% decline in imports of goods accompanied by a 9% drop in exports compared to 2023 and by 16% compared to 2022.

-       Services account: services surplus declined in 2024 to $0.7 billion, down from $1.3 billion in 2023. This decline is mostly attributed to a 10% drop in service exports, compared to a 4% decrease in service imports. The report noted that this sizeable decline in the services surplus in 2024 reflects contractions in major components namely travel (38% y-o-y drop) and communication (45.33% decline) services.

-       Income account: Lebanon’s income account deficit narrowed by $233 million in 2024, marking improvements of 9% compared to 2023 and 77% compared to 2022. According to BDL, said improvement was triggered by developments in investment income that registered a 6% y-o-y drop in net outflows. On the credit side, receipts dropped by 16% to $854 million, showing lower returns from resident-owned foreign assets. In addition, debits fell by 15% owing to decreased income payments to foreign investors.

-       Current transfer account: Net current transfers rose markedly in 2024 to attain $6.3 billion, up by 8% compared to 2023. Said increase was driven by a 7% rise in credit inflows while debit outflows recorded a 2% increase.

2)    Capital Account: Lebanon’s capital account surplus rose by 44% in 2024, mainly driven by a massive 51% increase in credit inflows and a sizeable 83% drop in debit outflows.

3)    Financial Account:

-       Direct Investment: Direct investment abroad surged by 223.14% to $391 million in 2024, up from $121 million in 2023 mainly fueled by an increase in equity capital outflows of $272 million in Q2-2024. Simultaneously, foreign direct investment (FDI) into Lebanon attained $1.8 billion in 2024 up from $1.1 billion in 2023 (73% increase) mainly fueled by the increase in equity capital inflows from non-resident investors, reflecting continued acquisitions in the country’s real estate sector.

-       Portfolio Investment: Lebanon’s portfolio investment assets rose by $249 million in 2024 up from $68 million in 2023 due to sizeable increases in investments in foreign long-term debt securities ($357 million in 2024 compared to $79 million in 2023), indicating renewed interest by residents in foreign bond markets. On the other hand, equity securities assets fell mainly owing to a significant $101 million drop in holdings by the resident non-banking sector.

-       Other Investment: Other investment assets decreased by $4.9 billion in 2024, compared to a drop of $5.1 billion in 2023. More specifically, loans to non-residents decreased by $6 million (compared to declines of $343 million in 2023 and $345 million in 2022). In addition, the report noted that currency and deposits assets saw a $174 million increase in 2024 due to the $141 million rise in banks’ deposits abroad. On the liabilities side, the recovery registered in 2024 was fueled by an increase in currency and deposit inflows from other sectors of $705 million (lower than the $1.2 billion recorded in 2023). Delving further into details, loan liabilities fell from $114 million in 2023 to -$371 million in 2024 due to a continued decrease in bank loan obligations. In addition, government obligations to non-residents amounted to a net of $1.2 billion in 2024 ($564 million in unpaid Eurobond principal and $659 million in accrued but unpaid coupon interest).

-       Reserve Assets: According to the report, BDL’s reserve assets dropped by $4.3 billion in 2024, compared to a smaller drop of $643 million in 2023 as the components of BDL’s foreign assets were revised effective January 2024.

     II.        International Investment Position Overview:

Lebanon’s IIP stood at -$58.8 billion in 2024, registering a minor $2.3 billion improvement when compared to the -$61.1 billion IIP registered in 2023. According to BDL’s report, this is the first time that Lebanon’s IIP has been compiled and officially published in line with international standards.

1)    External Assets: Lebanon’s external assets rose to $60.5 billion in 2024 up from $59.3 billion in 2023 mainly owing to:

-       Direct investment abroad rose to $15.2 billion

-       Portfolio investment assets increased to $1.6 billion primarily due to a major rise in debt securities from $806 million in 2023 to $1.2 billion in 2024, reflecting renewed interest by residents in international bond markets

-       Other investment assets remained almost flat at $9.3 billion while loans continued to drop gradually to $1.4 billion

-       Reserve assets increased to $34.4 billion mainly driven by a 26% rise in monetary gold holdings to $24.1 billion.

2)    External Liabilities: Lebanon’s total external liabilities dropped by 1% compared to 2023 to attain $119 billion due to:

-       Direct investment in Lebanon rose by 2.3% to reach $73.7 billion, reflecting sustained non-resident interest in real estate

-       Portfolio investment liabilities dropped to $12.4 billion

-       Other investment liabilities dropped to $33.2 billion, down from $35.5 billion mostly due to lower foreign loan obligations and deposits