LEBANON

Economic Freedom Score

50
25 75
Least Most
free 0 100 free
World Rank: 89 Regional Rank: 9 59.5

L ebanon’s economic freedom score is 59.5, making its

economy the 89th freest in the 2010 Index. Its score is 1.4
points higher than last year. Lebanon is ranked 9th out of
100
100
Country’s Score Over Time
Most free

17 countries in the Middle East/North Africa region, and its

overall score is about equal to the world average.
8080
The Lebanese economy performs comparatively well in
trade freedom and fiscal freedom. The financial sector is
relatively well developed for the region, with an array of
private banks and services. Lebanon has weathered the World average
6060
impact of the global economic turmoil, in part relying on the
use of short-term fiscal adjustments. However, its long-term
economic stability will depend on systematic reduction of
public debt, which stands at about 160 percent of GDP. 4040

Lebanon’s overall entrepreneurial environment, hampered

by political instability, remains unfavorable to private Lebanon
investment and productivity growth. Commercial regula-
2020
tions and bureaucratic red tape are burdensome. Property
rights are severely undermined by an inefficient judiciary,
and corruption is rampant.
Least free
Background: Lebanon gained its independence from 00

France in 1943 and was a trading and international banking 1995 1998 2001 2004 2007 2010
center until its disastrous 1975–1990 civil war. Syria, which
intervened ostensibly to halt the civil war, established hege- Quick Facts
mony over the country. In 2005, Syria was forced to withdraw Population: 4.1 million
its army after its government was implicated in the assas- GDP (PPP): $47.9 billion
sination of former Lebanese Prime Minister Rafiq Hariri. 8.0% growth in 2008
Prime Minister Fuad Siniora’s economic reform efforts were 4.8% 5-year compound
set back by the Hezbollah-instigated conflict with Israel in annual growth
2006 and subsequently by tensions between the government $11,570 per capita
and Hezbollah and other factions supported by Syria and Unemployment: 9.2% (2007)
Iran. A May 2008 agreement brokered by the government of
Inflation (CPI): 10.8%
Qatar installed Michel Suleiman, former head of the army,
as president. Rafiq Hariri’s son, Saad Hariri, was elected FDI Inflow: $3.6 billion
prime minister in June 2009. 2008 data unless otherwise noted
Data compiled as of September 2009

How Do We Measure Economic Freedom?

See page 457 for an explanation of the methodology or visit the Index Web site at heritage.org/index.

267
lebanon’s Ten Economic Freedoms government, and foreign investment is restricted in the
Business Freedom 56.6 real estate, insurance, media, and banking sectors. The
Trade Freedom 80.5 passage of several laws to promote investment has led
Fiscal Freedom 91.6 to some progress, but red tape and corruption, arbitrary
Government Spending 62.8 licensing decisions, dated legislation, an ineffectual judi-
Monetary Freedom 71.4
cial system, arbitrary and non-transparent interpretation
Investment Freedom 55.0
Financial Freedom 60.0 of laws, political instability, and other security concerns
Property Rights 30.0 continue to serve as impediments. Residents and non-res-
Fdm. from Corruption 30.0 idents may hold foreign exchange accounts, money market
Labor Freedom 57.0 instruments, and derivatives. There are no restrictions on
0 50 100 payments and transfers. Foreign investors may own land,
0
least free20 40 60 80 100
most free
= world average subject to a number of restrictions.

BUSINESS FREEDOM — 56.6 FINANCIAL FREEDOM — 60

The overall freedom to establish and run a business is
limited by Lebanon’s regulatory environment. The cost of
starting a business is high. Obtaining a business license
takes about the same as the world average of 18 procedures
and 218 days. Closing a business is a lengthy and costly
process.
TRADE FREEDOM — 80.5
Lebanon’s weighted average tariff rate was 4.8 percent
in 2007. Import bans and restrictions, restrictive licensing
rules, subsidies, burdensome sanitary and phytosanitary
regulations, corrupt customs administration, and weak
enforcement of intellectual property rights add to the cost
of trade. Ten points were deducted from Lebanon’s trade
freedom score to account for non-tariff barriers.
Lebanon’s financial sector has undergone restructuring
and consolidation, but overall progress has been slow in
recent years. The five largest commercial banks account for
roughly 60 percent of total banking assets. The government
retains no ownership in any commercial banks, and com-
petition among the private banks contributes to improving
efficiency. Regulations are fairly transparent, and credit is
allocated on market terms for both domestic and foreign
businesses. The insurance sector is small, and regulations
have been passed to tighten supervision and establish min-
imum capital requirements. Capital markets are relatively
well developed. Bank regulations limit banks’ exposure to
structured financial products. Lebanon’s banking sector
has weathered the global financial turmoil relatively well
and has maintained financial stability.

FISCAL FREEDOM — 91.6 PROPERTY RIGHTS — 30

Lebanon has relatively low tax rates. The top income tax
rate is 20 percent, and the corporate tax rate is 15 percent.
Other taxes include a value-added tax (VAT), a transfer tax
on real estate, and an inheritance tax of up to 45 percent. In
the most recent year, tax revenue as a percentage of GDP
was 14.8 percent.
GOVERNMENT SPENDING — 62.8
Total government expenditures, including consumption
and transfer payments, are moderate. In the most recent
year, government spending equaled 35.2 percent of GDP.
The telecommunication sector remains in state hands
despite plans for divestment. Privatization revenues, in
conjunction with fiscal consolidation through changes in
the VAT, could work to shrink the widening fiscal deficit.
MONETARY FREEDOM — 71.4
Inflation has been relatively high, averaging 8.7 percent
between 2006 and 2008. The government influences prices
through state-owned enterprises and subsidies and con-
trols the prices of bread, petroleum derivatives, pharma-
ceuticals, and electricity. Ten points were deducted from
Lebanon’s monetary freedom score to account for policies
that distort domestic prices.
INVESTMENT FREEDOM — 55
Foreign capital and domestic capital are legally equal, with
a few exceptions. Foreign investors must register with the
The judiciary is significantly influenced by the security ser-
vices and the police. The government-appointed prosecut-
ing magistrate exerts considerable influence over judges by,
for example, recommending verdicts and sentences. Trials,
particularly commercial cases, drag on for years. Although
Lebanese law provides for some protection of intellectual
property rights and the government continued to raid
shops and warehouses that were storing or displaying
pirated content in 2008, enforcement is generally weak.
FREEDOM FROM CORRUPTION — 30
Corruption is perceived as widespread and growing. Leba-
non ranks 102nd out of 179 countries in Transparency Inter-
national’s Corruption Perceptions Index for 2008, down for
the second year in a row. Corruption is more pervasive
in government contracts (primarily in procurement and
public works), taxation, and real estate registration than
in private-sector deals. It is widely believed that inves-
tors routinely pay bribes to win government contracts,
which are often awarded to companies close to powerful
politicians.
LABOR FREEDOM — 57
Lebanon’s labor regulations are relatively rigid. The non-
salary cost of employing a worker remains high, and dis-
missing an employee is relatively expensive. Restrictions
on work hours are moderate.

268 2010 Index of Economic Freedom