|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 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:
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.
purchasing power parity - $18.2 billion (2000 est.)
SOURCES: The World Factbook, U.S. Department of State
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