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Quick Facts
- Population:
- GDP (PPP):
- $59.4 billion
- 7.5% growth
- 6.6% 5-year compound annual growth
- $15,193 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
Lebanon’s economic freedom score is 60.1, making its economy the 90th freest in the 2012 Index. Its score remains unchanged from last year, with small gains in labor freedom and the control of government spending offset by small declines in business freedom and monetary freedom. Lebanon is ranked 10th out of 17 countries in the Middle East/North Africa region, and its overall score is just above the world average.
The Lebanese economy has weathered the impact of the global economic turmoil relatively well, achieving an average growth rate above 6 percent over the past five years. Continued economic expansion has been facilitated by open-market policies related to trade and low corporate tax rates. The financial sector is relatively well developed for the region.
Nonetheless, Lebanon’s overall entrepreneurial environment, hampered by lingering political instability and regulatory inefficiency, remains unfavorable to more dynamic growth in private investment. Commercial regulations are still burdensome. In the absence of a well-functioning legal framework, protection of property rights remains weak, and corruption is widespread.
Background
Lebanon flourished as a trading and international banking center until its economy was severely disrupted by the 1975–1990 civil war. Syria established hegemony but was forced to withdraw its army in 2005 after the Syrian government was implicated in the assassination of former Lebanese Prime Minister Rafiq Hariri. Lebanon’s economy and political stability were set back by the Hezbollah-instigated conflict with Israel in 2006 and by tensions between the government and Hezbollah and other factions supported by Syria and Iran. A May 2008 agreement brokered by Qatar installed former army leader Michel Suleiman as president. Rafiq Hariri’s son, Saad Hariri, was elected prime minister in June 2009 and in November was forced by Syria to form a national unity government that included Hezbollah. That government collapsed in January 2011 when Hezbollah withdrew and engineered the elevation of Najib Mikati as prime minister of a new government.
The judiciary is weak and vulnerable to political interference. The government-appointed prosecuting magistrate exerts considerable influence over judges. Trials, particularly of commercial cases, drag on for years. Lebanese law provides for some protection of intellectual property rights, but piracy remains a significant problem. Corruption is rampant, further undermining the fragile rule of law.
The top income tax rate is 20 percent, and the top corporate tax rate is 15 percent. Other taxes include a value-added tax (VAT) and an inheritance tax, with the overall tax burden amounting to 17.2 percent of total domestic income. Government spending is equivalent to 32.5 percent of total domestic output. The deficit equals 7.3 percent of GDP, and public debt remains larger than the size of the economy.
Despite some progress, the overall freedom to conduct business remains limited by the burdensome regulatory environment. Licensing can cost over three times the level of annual average income. The process for closing a business is lengthy and costly. Labor regulations remain relatively rigid. The government influences prices through state-owned enterprises and directly controls the prices of key products. Monetary stability has weakened.
The trade weighted average tariff rate is 4.8 percent. The trade system is relatively open, and the country is working to join the World Trade Organization. Political instability and the arbitrary and non-transparent interpretation of laws continue to impede foreign investment. The government retains no ownership in any commercial banks, and competition among the private banks has contributed to improved efficiency.