Economy of Lebanon

The economy of Lebanon has been experiencing a large-scale multi-dimensional crisis since 2019, including a banking collapse, the Lebanese liquidity crisis, and a sovereign default. It is classified as a developing, lower-middle-income economy. The nominal GDP was estimated at $19 billion in 2020, with a per capita GDP amounting to $2,500. In 2018 government spending amounted to $15.9 billion, or 23% of GDP. The Lebanese economy went through a significant expansion after the 34-day war of 2006, with growth averaging 9.1% between 2007 and 2010. After 2011, the local economy was affected by the Syrian civil war, growing by a yearly average of 1.7% in the 2011-2016 period and by 1.5% in 2017. The Lebanese economy is service-oriented. Lebanon has a strong tradition of laissez-faire, with the country's constitution stating that "the economic system is free and ensures private initiative and the right to private property". The major economic sectors include metal products, banking, agriculture, chemicals, and transport equipment.

Top Sectors in Lebanon

Agriculture in Lebanon

Agriculture in Lebanon is the third most productive sector in the country after the tertiary and industrial sectors. It contributes 3.1% of GDP and 8 percent of the effective labor force. The sector includes an informal Syrian labor and is dependent on foreign labor for its productivity. Main crops include cereals (mainly wheat and barley), fruits and vegetables, olives, grapes, and tobacco, along with sheep and goat herding. Mineral resources are limited and are only exploited for domestic consumption. Lebanon, which has a variety of agricultural lands, from the interior plateau of the Beqaa Valley to the narrow valleys leading downward to the sea, enables farmers to grow both European and tropical crops. Tobacco and figs are grown in the south, citrus fruits and bananas along the coast, olives in the north and around the Shouf Mountains, and fruits and vegetables in the Beqaa Valley. More exotic crops include avocados, grown near Byblos, and hashish (a major crop in the Beqaa Valley). Although the country benefits from favorable farming conditions and diverse microclimates, it relies on food imports, which make up 80% of its consumption.

Tourism in Lebanon

The tourism industry in Lebanon has been important to the local economy historically and comprises a major source of revenue for the country. From Stone Age settlements to Phoenician city-states, Roman temples to rock-cut hermitages, Crusader castles to Mamluk mosques and Ottoman hammams, the country's many historical landmarks and archaeological sites reflect thousands of years of world history. In addition to physical attractions, Lebanon has a long-standing history of cultural tourism. Outsider interest in Lebanese culture was especially stirred following the visits of many European orientalists, scholars, and poets, particularly Alphonse de Lamartine, Ernest Renan, and Victor GuÃ©rin. Prior to the Lebanese Civil War, Lebanon was regarded as "The Switzerland of the Middle East", and Beirut was referred to as "The Paris of the Middle East", renowned as a financial and business hub.

Lebanon - Key Economic Indicators

Exports and Imports

Lebanon's economy heavily relies on trade, with significant imports and exports. As of the latest data, the country primarily exports jewelry, base metals, chemicals, and electrical equipment. Its major export partners include Switzerland, the United Arab Emirates, Saudi Arabia, and South Africa. On the import side, Lebanon mainly brings in mineral fuels, automobiles, pharmaceutical products, and foodstuffs, with China, Italy, Greece, and Turkey being key suppliers. The ongoing economic crisis has, however, drastically affected trade volumes, leading to a reduction in both imports and exports.

Infrastructure

Lebanon's infrastructure, encompassing roads, bridges, ports, and airports, is in critical condition, exacerbated by years of neglect and recent economic turmoil. The road network, spanning around 21,700 kilometers, includes major highways connecting Beirut with other cities, but many are in disrepair. Bridges and other vital structures need urgent maintenance. The Port of Beirut, crucial for trade, suffered extensive damage in the 2020 explosion but has partially recovered. Investment in infrastructure is essential for economic recovery, yet financial constraints limit improvements.

Balance of Trade

Lebanon has historically experienced a significant trade deficit, with imports vastly exceeding exports. The latest figures indicate this imbalance persists, as the country continues to rely heavily on imported goods and services while struggling to boost its export capacity. The devaluation of the Lebanese pound and economic instability have further strained the trade balance, making it challenging to achieve a sustainable equilibrium.

Fiscal Policy

Lebanon's fiscal policy is characterized by high government spending and substantial deficits, compounded by the economic crisis and political instability. Government expenditures are heavily skewed towards debt servicing, public sector wages, and subsidies. Tax revenues are insufficient to cover spending, leading to chronic budget deficits. Recent attempts to implement fiscal reforms, including subsidy cuts and tax adjustments, have faced public resistance and limited success, further complicating fiscal stability.

Monetary Policy

The Lebanese central bank, Banque du Liban, has implemented various monetary policies to stabilize the economy amidst a severe financial crisis. Key measures include maintaining multiple exchange rates, regulating bank withdrawals and transfers, and attempting to manage inflation. Despite these efforts, the Lebanese pound has experienced significant devaluation, and the banking sector remains under immense strain. The central bank's actions aim to restore confidence and liquidity but face significant challenges due to the depth of the economic crisis.

Trade Agreements

Lebanon is not a member of major trade agreements like NAFTA but is part of several regional and bilateral trade agreements. These include agreements with the European Union under the Euro-Mediterranean Partnership, as well as trade pacts with Arab countries through the Greater Arab Free Trade Area (GAFTA). These agreements aim to enhance trade flows, reduce tariffs, and foster economic cooperation, although their impact has been muted by Lebanon's internal economic challenges.

Environmental Regulations

Lebanon faces considerable environmental challenges, including pollution, waste management issues, and deforestation. The government has enacted several environmental regulations to address these issues, such as the National Strategy for Sustainable Development and the Ministry of Environment's various initiatives. However, implementation and enforcement are often weak due to political instability, limited funding, and bureaucratic inefficiencies. Strengthening environmental governance and regulations is crucial for mitigating the country's environmental problems.

Tax System in Lebanon

Capital Gains Tax: Lebanon imposes a capital gains tax on profits from investments, including gains from the sale of stocks, bonds, and real estate. However, the exact rate and implementation may vary and can be subject to changes in tax laws and regulations.
Corporate Tax Rate: The corporate tax rate in Lebanon has traditionally been set at 15%, but during periods of fiscal distress, the government might introduce temporary measures or adjustments to cope with economic challenges. However, evasion and non-compliance issues have been prevalent, affecting effective revenue collection.
Sales Tax: Lebanon has implemented a value-added tax (VAT) system on goods and services, with rates typically ranging from 5% to 10%. This VAT system has been a significant revenue source for the government, but enforcement and compliance issues have undermined its effectiveness.
Property Tax: Property tax in Lebanon is levied on real estate holdings, but the enforcement and collection of this tax have been inconsistent due to a variety of factors, including political influence, administrative inefficiencies, and lack of transparency.
Payroll Tax: Lebanon does not have a specific payroll tax, but social security contributions are deducted from employees' salaries to fund pension and healthcare benefits. However, the efficacy of these contributions in sustaining social security programs has been jeopardized by economic instability and government mismanagement.
Tax Deductions and Credits: The Lebanese tax system includes various deductions and credits aimed at incentivizing certain behaviors or investments, such as deductions for education expenses or credits for investment in specific sectors. However, these provisions have often been criticized for favoring the wealthy or well-connected individuals and corporations.
Tax Compliance: Tax compliance in Lebanon has been a significant challenge, with widespread tax evasion and informal economic activities contributing to revenue losses for the government. Weak enforcement mechanisms, corruption, and a lack of trust in public institutions have further hindered efforts to improve compliance.
Tax Burden: The overall tax burden on individuals and businesses in Lebanon has been relatively high compared to regional peers, particularly considering the limited public services and infrastructure provided by the government. High taxes coupled with a struggling economy have placed a heavy burden on taxpayers, exacerbating social and economic inequalities.

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