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Recent Economic Reforms in Lebanon:Economic Freedom & Governance

5th Economic Freedom of the Arab World Conference

Cairo, November 1-2, 2010

Dr. Mounir Rached- Vice PresidentMr. Mario Nassar- Project Coordinator

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Contents

I. Global ranking

II. Relative ranking in MENA

III. Prominent features of the Lebanese economy

IV. Recent achievements

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I.Global rankingLebanon has espoused liberal economic policies since

independence

The public sector remained engaged in few functions

in education only 15% 0f schools are public

The state has limited interference in economic activity

Plays the role of regulator (?)

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Global cont

Lebanon, however, continues to have a relatively low ranking in the global economic freedom index

77th globally

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Global cont

Its rating is burdened by few important components

Corruption is perceived to be high-one of the highest among peers. 102nd out of 179

Corruption is well entrenched

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Global cont Property rights (enforcement of contracts) score is low

Its legal system is perceived to be politically manipulated Investment freedom score is low

Restricted licensing- cumbersome administrative procedures- multiple phases- Ceilings on certain investments No restriction ,however, on capital flows-private & enterprises

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II.Relative ranking in MENA

2002 2003 2004 2005 2006 2007 20087

7.2

7.4

7.6

7.8

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8.2

Top Economic Freedom Achievers in the Arab World (Fraser Institute)

BahrainJordan KuwaitLebanonOman Qatar F

inal

Gra

de

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Index of Economic Freedom The index adopted by Fraser Institute Foundation

relies on Five areas:

Size of Government

Commercial & Economic Law and Security of Property Rights

Access to Sound Money

Freedom to Trade Internationally

Regulation of Credit, Labor and Business

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Lebanon- Economic freedom index

Lebanon’s Ranking in MENA (Fraser Institute):

Year 2002 : Rank 4

Year 2003 : Rank 4

Year 2004 : Rank 5

Year 2005 : Rank 4

Year 2006 : Rank 4

Year 2007 : Rank 3

Year 2008 : Rank 3

Size of Government- Lebanon

2002 20080.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

General government consumption spending as a percentage of total consumption

Transfers and subsidies as a percentage of GDP

Government enterprises and investment

Top marginal tax rate

Year

Gra

des

Rank in the Arab World (2008): 1

Commercial and Economic Law and Security of Property Rights- Lebanon

2002 20080.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

Military interference in rule of law and the polit-ical process

Integrity of the legal system

Regulatory restrictions on the sale of real property

Legal enforcement of contracts

Year

Gra

des

Rank in the AW (2008): 15

Access to Sound Money-Lebanon

2002 20080.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

Money growth

Standard deviation of in-flation

Inflation: Most recent year

Freedom to own foreign currency bank accounts

Year

Gra

des

Rank in the AW (2008): 3

Freedom to Trade Internationally Lebanon

2002 20080.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

Taxes on international trade

Black-market exchange rates

Capital controls

Year

Gra

des

Rank in the AW (2008): 11

Regulation of Credit, Labor & Business Lebanon

2002 20080.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

Credit Market Regula-tions

Labour Market Regula-tions

Business Regulations

Year

Gra

des

Rank in the AW (2008): 3

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Lebanon’s Score Over Time2002 2008

Overall Score 7.8 7.6

Size of Government 8.7 8.4 Subsidy score

Commercial & Economic Law & Security of Property Rights

6.1 6.1

Access to Sound Money

9.6 8.8 inflation score

Freedom to Trade Internationally

7.3 6.8 capital controls score

Credit, Labor, and Business

7.2 8.0 labor market improved

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III. Prominent Features of Lebanese economy

Lebanon is by far the best performer in the size of government rating compared to the Arab World

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(Cont.)

2007 1. Gov Consumption /Total consumption =

13.82%

Arab World’s Average = 24%

Transfers & Subsidies/GDP = 7.1%

Arab World’s Average = 7.84%

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(Cont.)

2. Taxes relatively low

Tax Revenue/ GDP = 14.8%

Income Tax Rate = 20% World Average = 29.26%

Top Corporate Tax Rate = 15% World Average = 25.1%

VAT =10%

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3. Trade Freedom: one of the highest scores

8.9

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IV. Recent Achievements

Paris I, II & III and IMF agreement Ministry of Finance & Ministry of Trade &

Economy Gradual reduction of customs Introduced ASYCUDA to customs clearance Introduced VAT Developing and modernizing tax procedures Restructuring of Tax office Automate tax payment Promoting transparency and openness to the

public

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Achievements

Introduced competitiveness law

Introduced new Property rights law-WIPO based

Introduced new procurement law

Social security reform initiated

Privatization remains undecided (how to privatize)

`

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Achievements Free Trade Agreements were signed with Lebanon’s major

trading partners; namely:

The European Union (EU), The EFTA States (Switzerland, Lichtenstein, Norway, Iceland) and The Gulf Cooperation Countries (GCC); and A full establishment of the Greater Arab Free Trade Area

(GAFTA) was achieved in January 2005

Lebanon is also actively negotiating accession to the World Trade Organization (WTO) 

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Achievements

Recapitalized banks

Improved supervision

Political impasses delay reform END