Economy of Lebanon

History

The 1975-91 civil war seriously damaged Lebanon's economic infrastructure, cut national output by half, and all but ended Lebanon's position as a Middle Eastern entrepot and banking hub. Peace has enabled the central government to restore control in Beirut, begin collecting taxes, and regain access to key port and government facilities. Economic recovery has been helped by a financially sound banking system and resilient small- and medium-scale manufacturers, with family remittances, banking services, manufactured and farm exports, and international aid as the main sources of foreign exchange. Lebanon's economy has made impressive gains since the launch of "Horizon 2000," the government's $20 billion reconstruction program in 1993. Real GDP grew 8% in 1994 and 7% in 1995 before Israel's Operation Grapes of Wrath in April 1996 stunted economic activity. Real GDP grew at an average annual rate of less than 3% per year for 1997 and 1998 and only 1% in 1999. During 1992-98, annual inflation fell from more than 100% to 5%, and foreign exchange reserves jumped to more than $6 billion from $1.4 billion. Burgeoning capital inflows have generated foreign payments surpluses, and the Lebanese pound has remained relatively stable. Progress also has been made in rebuilding Lebanon's war-torn physical and financial infrastructure. Solidere, a $2-billion firm, is managing the reconstruction of Beirut's central business district; the stock market reopened in January 1996; and international banks and insurance companies are returning. The government nonetheless faces serious challenges in the economic arena. It has had to fund reconstruction by tapping foreign exchange reserves and boosting borrowing. Reducing the government budget deficit is a major goal of the LAHUD government. The stalled peace process and ongoing violence in southern Lebanon could lead to wider hostilities that would disrupt vital capital inflows. Furthermore, the gap between rich and poor has widened in the 1990s, resulting in grassroots dissatisfaction over the skewed distribution of the reconstruction's benefits and leading the government to shift its focus from rebuilding infrastructure to improving living conditions.

Further detail

Lebanon has a competitive and free market regime and a strong laissez-faire commercial tradition. The Lebanese economy is service-oriented; main growth sectors include banking and tourism. There are no restrictions on foreign exchange or capital movement, and bank secrecy is strictly enforced. Lebanon has recently adopted a law to combat money laundering. There are practically no restrictions on foreign investment. There are no country-specific U.S. trade sanctions against Lebanon.

Lebanon benefits from its large, cohesive, and entrepreneurial diaspora. Lebanese abroad send money home to help relatives pay for all kinds of needs. Most of this remittance money goes into consumption, and not investment, though. In 1961 "a sample year, income from emigre remittances equaled 92 million Lebanese pounds, or 40 percent of all of Lebanon's foreign-earned income." (source, Lebanon: Death of a Nation, Sandra Mackey, pg 88)

Lebanon was unable to attract significant foreign aid to help it rebuild from both the long civil war (1975-89) and the Israeli occupation of the south (1978-2000). In addition, the delicate social balance and the near- dissolution of central government institutions during the civil war handicapped the state as it sought to capture revenues to fund the recovery effort. Thus it accumulated significant debt, which by 2001 had reached $28 billion, or nearly 150% of GDP. Unfortunately, economic performance was sluggish in 2000 and 2001 (zero growth in 2000, and estimates between 1.0-1.4% in 2001, largely attributed to slight increases in tourism, banking, industry, and construction). Unemployment is estimated at 14% for 2000 and 29% among the 15-24 year age group, with preliminary estimates of further increases in 2001.

Lebanon's current program of reforms focuses on three main pillars:

• Economic revival and sustainable growth, with the private sector as the engine of growth;
• Fiscal consolidation and structural improvement in public sector finances; and
• Monetary, financial, and price stability.

The government also has maintained a firm commitment to the Lebanese pound, which has been pegged to the dollar since September 1999. In late 2000, the government substantially reduced customs duties, adopted export promotion schemes for agriculture, decreased social security fees and restrictions on investment in real estate by foreigners, and adopted an open-skies policy, with positive effects on trade in 2001. Nonetheless, the relative appreciation of the Lebanese currency has undermined competitiveness, with merchandise exports falling from 23% of GDP in 1989 to 4% in 2000.

In 2001, the government turned its focus to fiscal measures, increasing gasoline taxes, reducing expenditures, and approving a value-added-tax that became effective in February 2002. Slow money growth and dollarization of deposits have hampered the ability of commercial banks to finance the government, leaving more of the burden to the Central Bank. This monetization of the fiscal deficit has put enormous pressure on Central Bank reserves, mitigated only slightly with the issuance of new Eurobonds over the past 2 years. The Central Bank has maintained a stable currency by intervening directly in the market, as well as low inflation, and succeeded in maintaining investors' confidence in debt. It has done so at a cost, however, as international reserves declined by $2.4 billion in 2000 and by $1.6 billion in the first half of 2001.

For 2002, the government has put primary emphasis on privatization, initially in the telecom sector and electricity, with continued planning for sales of the state airline, Beirut port, and water utilities. The government has pledged to apply the proceeds of sales to reducing the public debt and the budget deficit. In addition, it projects that privatization will bring new savings as government payrolls are pared, interest rates decline, and private sector growth and foreign investment are stimulated. The government also is tackling the daunting task of administrative reform, aiming to bring in qualified technocrats to address ambitious economic programs, and reviewing further savings that can be realized through reforms of the income tax system. The Lebanese Government faces major challenges in order to meet the requirements of a fiscal adjustment program focusing on tax reforms and modernization, expenditure rationalization, privatization, and improved debt management.

The U.S. enjoys a strong exporter position with Lebanon, generally ranking as Lebanon's fourth-largest source of imported goods. More than 160 offices representing U.S. businesses currently operate in Lebanon. Since the lifting of the passport restriction in 1997 (see below), a number of large U.S. companies have opened branch or regional offices, including Microsoft, American Airlines, Arthur Andersen, Coca-Cola, FedEx, UPS, General Electric, Parsons Brinckerhoff, Cisco Systems, Eli Lilly, and Pepsi Cola.

Statistics

GDP: purchasing power parity - $17.82 billion (2003 est.)

GDP - real growth rate: 3% (2003 est.)

GDP - per capita: purchasing power parity - $4,800 (2003 est.)

GDP - composition by sector:
agriculture: 12%
industry: 21%
services: 67% (2000)

Population below poverty line: 28% (1999 est.)

Household income or consumption by percentage share:
lowest 10%: NA%
highest 10%: NA%

Inflation rate (consumer prices): 2.5% (2003 est.)

Labor force: 1.5 million (2001 est.)
note: in addition, there are as many as 1 million foreign workers (2001 est.)

Labor force - by occupation: services 62%, industry 31%, agriculture 7% (1997 est.)

Unemployment rate: 18% (1997 est.)

Budget:
revenues: $4.414 billion
expenditures: $7.026 billion, including capital expenditures of $NA (2003 est.)

Industries: banking; food processing; jewelry; cement; textiles; mineral and chemical products; wood and furniture products; oil refining; metal fabricating

Industrial production growth rate: NA%

Electricity - production: 9,700 GWh (1998)

Electricity - production by source:
fossil fuel: 90.72%
hydro: 9.28%
nuclear: 0%
other: 0% (1998)

Electricity - consumption: 9,629 GWh (1998)

Electricity - exports: 0 kWh (1998)

Electricity - imports: 608 GWh (1998)

Agriculture - products: citrus, grapes, tomatoes, apples, vegetables, potatoes, olives, tobacco; sheep, goats

Exports: $1.359 billion (f.o.b., 2003 est.)

Exports - commodities: foodstuffs and tobacco, textiles, chemicals, metal and metal products, electrical equipment and products, jewelry, paper and paper products

Exports - partners: UAE 10.3%, Switzerland 9.3%, Saudi Arabia 7.7%, US 7.5%, Turkey 4.6%, Jordan 4.5%, Syria (2003 est.)

Imports: $6.073 billion (f.o.b., 2003 est.)

Imports - commodities: foodstuffs, machinery and transport equipment, consumer goods, chemicals, textiles, metals, fuels, agricultural foods

Imports - partners: France 13.1%, Germany 11.4%, Italy 10.5%, Syria 5.2%, China 5.1%, UK 4.8%, US 4.4% (2003 est.)

Debt - external: $20.79 billion (2003 est.)

Economic aid - recipient: $3.5 billion (pledges 1997-2001); $4.2 billion in soft loan pledges November 2002 Paris II Aid Conference (2002)

Currency: 1 Lebanese pound = 100 piasters

Exchange rates: Lebanese pounds per US dollar - 1,507.5 (2003), 1,507.5 (2002), 1,507.5 (2001), 1,507.5 (2000), 1,507.84 (1999)

Fiscal year: calendar year

See also : Lebanon