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Lebanon
Score Rank
Financial Standards Index 15.83 out of 100 82
Business Indicator Index 5.57 out of 12 81

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Overall Standards Summary

Lebanon achieves very low overall compliance with international standards and codes, with a score of 15.83 out of 100 in our Standards Compliance Index. Lebanon is poor in macroeconomic fundamentals with two standards at the "no compliance" level and one, monetary transparency, lacking independent assessments of its level of compliance. Lebanon does not fare any better in the market infrastructure and financial supervision categories. However, there are reports of ongoing reforms. In 2006, the Lebanese Transparency Association adopted a Lebanese Code of Corporate Governance, and implemented the European Union (EU) Association Agreement, which requires Lebanese companies to adopt corporate governance principles in line with EU legislation. The Central Bank of Lebanon has also approved the final road map for creating a real time gross settlement system compliant with international standards. Also a draft insurance law promises to bring Lebanon in conformity to the Insurance Core Principles. Finally, the U.S. Department of Commerce, in its 2009 Country Commercial Guide, indicates that Lebanon's banking sector is sound with high capital adequacy ratios, and a transparent regulatory framework in line with the Bank for International Settlements standards.

Choose a standard for a detailed compliance report:
12 Key Standards for Sound Financial Systems

Compliance Level
Special Data Dissemination Standard
NC
Code of Good Practices on Transparency in Monetary Policy
II
Code of Good Practices on Transparency in Fiscal Policy
NC
Effective Insolvency and Creditor Rights Systems
II
International Financial Reporting Standards
NC
Principles of Corporate Governance
ID
International Standards on Auditing
NC
Anti-Money Laundering/Combating Terrorist Financing Standard
ID
Core Principles for Systemically Important Payment Systems
II
Core Principles for Effective Banking Supervision
ID
Objectives and Principles of Securities Regulation
ID
Insurance Core Principles
ID
II = Insufficient Information | NC = No Compliance | ID = Intent Declared | EN = Enacted | CP = Compliance in Process | FC = Full Compliance

Macroeconomic Policy and Data Transparency

NCSpecial Data Dissemination Standard

Lebanon does not subscribe to the International Monetary Fund's (IMF) Special Data Dissemination Standard. It does, however, subscribe to the less rigorous General Data Dissemination System (GDDS), and has done so since January 2003, according to the GDDS website. A number of IMF sources have noted the existence of significant statistical weaknesses in a variety of areas, including national accounts and balance-of-payment data, price indices, labor statistics, demographics, and others. On the other hand, the IMF has found monetary and financial markets data, as well as central government budgetary accounts to be adequately covered. The deficiencies, taken together, are judged to have made effective economic monitoring more difficult. As of the 2009 IMF Article IV Consultations report, most of the previously noted deficiencies remain, and a comprehensive overhaul of the statistical regime is needed. Specific factors contributing to Lebanon's data dissemination difficulties include inadequate staffing at the Central Bank of Lebanon and the Central Administration for Statistics, as well as poor inter-agency cooperation. To improve its situation, Lebanon will require technical assistance.

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IICode of Good Practices on Transparency in Monetary Policy

The Law for the Code of Money and Credit provides the Central Bank of Lebanon (CBL) with financial and administrative autonomy, but the IMF's 2005 Report on the Observance of Standards and Codes (ROSC) for Fiscal Transparency asserted that there have been times in the past when the CBL's independence has been compromised. Contributing to the problem is the CBL's own regulatory framework, in which the Minister of Finance nominates candidates for the posts of governor and ministerial representatives to serve on the CBL board of directors. The ROSC noted that such representatives are prohibited by law from interfering with the management of the CBL. Nonetheless, the situation contributes to a lack of clarity as to the respective roles and responsibilities in monetary and fiscal policy. In its 2007 Public Information Notice regarding the conclusion of that year's Article IV Consultations, the IMF suggested that clarity of roles and responsibilities could be enhanced if the CBL refrained from quasi-fiscal activities, established a joint working group in the Ministry of Finance, and the CBL better coordinated interventions in the financial market. The IMF also suggested that the CBL reduce its direct financing of the government. In its 2009 Article IV report, the IMF singled out two recent CBL achievements, both of which occurred in January of 2009. First, the CBL established an investment committee and drafted formal guidelines for foreign reserve management. Second, it adopted formal policies that govern the selection, appointment, and rotation of the CBL's external auditors. However, no comprehensive information is publicly available to enable an accurate assessment of Lebanon's overall level of compliance with the IMF's Monetary Policy Transparency Code.

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NCCode of Good Practices on Transparency in Fiscal Policy

The IMF, in the fiscal module of its 2005 Report on the Observance of Standards and Codes (ROSC), notes that Lebanon needs to implement institutional and legislative reforms to improve transparency and accountability within the budgetary process. Both in terms of budget preparation and information integrity, the ROSC cites the need for improvements in order to meet the requirements of the IMF's Code of Good Practices on Transparency in Fiscal Policy. Some progress was acknowledged in the ROSC, however. Lebanon adopted a new budget classification standard in 1997 that comports with the methodology employed in the 1986 Government Finance Statistics Manual. It has brought computerization into the fiscal process, and the Ministry of Finance has begun to provide more regular and timely publications on fiscal policy and outcomes. The ROSC also applauded the ongoing progress toward establishing a unitary Treasury account. Nonetheless, the ROSC noted a number of specific shortcomings in Lebanese fiscal policy transparency, including the lack of an external audit, the failure to include audited statements of prior-year budget performance in the current year's budget document, and the continuing reliance on extra-budgetary and quasi-fiscal activities within the budget. The 2009 IMF Article IV Consultation report documents further tax taw reforms, but it observes that there is a need for an overhaul of the statistics system. According to the Open Budget Index for 2008, Lebanon's budget documentation provides only minimal information to the public.

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Institutional and Market Infrastructure

IIEffective Insolvency and Creditor Rights Systems

Lebanon lacks any modern legislation specifically covering bankruptcy and insolvency. According to a 2007 report by the U.S. Department of Commerce, Lebanese court procedures are archaic, the courts may be interfered with, and there are too few judges. Insolvency related issues are dealt with under the Commercial Code and the Penal Code, according to a 2005 report by the Institut de la Mediterranee (Institute of the Mediterranean) of France and the Economic Research Forum of Egypt. The government of Lebanon considers it a priority to reform insolvency procedures, and in 2006, the Ministry of Finance reported that, with the support of the European Union, a new draft law which is "in line with the latest international guidelines" was awaiting final review and approval. However, no further information as to Lebanon's compliance with the Principles and Guidelines for Effective Insolvency and Creditor Rights Systems developed by the World Bank is publicly available.

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NCInternational Financial Reporting Standards

A 2003 World Bank review of the accounting and auditing environment in Lebanon noted that the ministerial order of 1996 required the adoption of International Financial Reporting Standards (IFRSs) "with exceptions" for most companies. Listed companies are required to follow IFRSs, however, banks must follow rules set by the Banking Control Commission, which differ from IFRSs, the World Bank noted. With regard to small companies, the World Bank report pointed out that these entities are exempt from IFRSs requirements. Overall, the World Bank reported that despite the adoption of international standards, significant compliance gaps exist in both accounting and auditing practices, although fewer gaps were observed with banks and listed companies. Camille C. Sifri, in a 2004 presentation, reiterated the fact that mandatory implementation as well as effective enforcement of IFRSs was limited to publicly listed companies and banks. World Bank recommendations included, but were not limited to, adopting new laws regulating accounting and auditing, requiring the application of IFRSs by all public interest entities, reforming the role of the Higher Council on Accounting as the professional oversight body, and upgrading the licensing procedure for accountants in public practice.

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IDPrinciples of Corporate Governance

According to a 2005 report on corporate governance in Lebanon by the Institute of International Finance (IIF), although the Lebanese government has given high priority to improving its legal and institutional framework for corporate governance, important gaps remain, and the judicial system still lacks independence. Furthermore, minority shareholders' rights are not adequately protected and the responsibilities of the Board are not well defined. Therefore, the IIF Equity Advisory Group recommended applying the guidelines of the 2002 IIF Corporate Governance Code and preparing a corporate governance code on a mandatory or "comply-or-explain" basis. It further advised establishing an independent securities supervisory authority to ensure effective enforcement. In 2002 the Lebanese Corporate Governance Task Force was put in place by the Lebanese Transparency Association (LTA) to design and implement projects on corporate governance in Lebanon. In 2006, the LTA adopted a Lebanese Code of Corporate Governance, and implemented the European Union (EU) Association Agreement, which requires Lebanese companies to adopt corporate governance principles in line with EU legislation. A 2006 Ministry of Finance report indicates that the Council of Ministers approved the Capital Market Draft Law on March 1, 2006, which will establish the Capital Markets Council, a capital markets regulatory authority, and will empower it to issue detailed regulations to govern the capital market. The 2009 U.S. Department of Commerce report adds that the law is now awaiting parliamentary approval. On October 11, 2007, the International Finance Corporation (IFC) signed a Memorandum of Understanding with the LTA to establish an institute that will promote better corporate governance practices in Lebanon.

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NCInternational Standards on Auditing

According to a 2003 World Bank review of accounting and auditing practices in Lebanon, financial statements of listed companies and banks must be audited in accordance with International Standards on Auditing (ISAs) per the Beirut Stock Exchange and Banking Control Commission rules, respectively. However, the assessment noted that Lebanese legislation does not specify auditing standards with regard to other entities. Nonetheless, many audit firms make an effort to perform audits in line with ISAs. At the time of the assessment, the Minister of Finance was in the process of drafting a Ministerial Order to require the use of ISAs by all auditors. However, the 2007 Lebanese Association of Certified Public Accountants self-assessment stated that the issuance of such an order was still a work-in-progress. The World Bank noted that, in general, Lebanon had made "commendable progress" in implementing international standards. However, other than in banks and listed companies, significant compliance gaps existed both in accounting and auditing practices. Among other issues, the World Bank recommended reviewing existing legislation or legislating new laws for accounting and auditing, requiring the application of ISAs by all public interest entities, reforming the role of the Higher Council on Accounting as the professional oversight body, and upgrading the licensing procedure for auditors in public practice.

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IDAnti-Money Laundering/Combating Terrorist Financing Standard

Lebanon is a founding member of the Middle East and North Africa Financial Action Task Force (MENAFATF) which is an associate member of the Financial Action Task Force (FATF). Members of the MENAFATF signed a Memorandum of Understanding in 2004, whereby they pledged to adopt and implement the FATF's recommendations. Moreover, in its 2006 annual report, the MENAFATF states that all accession countries must adopt the FATF Forty Recommendations and Nine Special Recommendations. The FATF's 2007-2008 Annual Report also names Lebanon as one of the jurisdictions that has undertaken to implement the FATF's 40+9 recommendations. As noted in a 2009 U.S. Department of State (DoS) International Narcotics Control Strategy Report, Lebanon is scheduled for a MENAFATF Mutual Evaluation on its compliance with international standards. The report adds that Lebanon has been taking measures to strengthen its anti-money laundering and terrorist financing regime since the early 2000s. For instance, with regard to the legal framework, on April 20, 2001, the Lebanese Parliament passed Law No. 318 on Fighting Money Laundering, which criminalizes money laundering, defines fines and sanctions, and creates a framework for lifting banking secrecy. Lebanon also adopted Law No. 547, criminalizing funds related to the financing of terrorism, acts of public/private funds theft, and counterfeiting, as well as Law No. 553, providing an extension to the Penal Code on terrorist financing. Additionally, Law No. 318 also established Lebanon's Financial Intelligence Unit (FIU), the Special Investigation Commission (SIC) as an independent legal entity with judicial powers. Overall, the 2009 U.S. DoS report finds Lebanon significantly vulnerable to money laundering and terrorist financing activities. Most significantly, the DoS recommends that Lebanon become a party to the UN International Convention for the Suppression of Terrorist Financing and to the UN Convention against Corruption.

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IICore Principles for Systemically Important Payment Systems

The 2006 and 2009 Article IV Consultation reports by the IMF both mention that the IMF has been providing technical assistance to Lebanon since 2004 in the area of payment systems. The IMF has assessed the payment systems in Lebanon as to their compliance with the Core Principles for Systemically Important Payments Systems (CPSIPS) promulgated by the Committee on Payment and Settlement Systems (CPSS). However, there no information publicly available regarding the results of this assessment, or as to which is the systemically important payment system in Lebanon. The 2009 IMF report also states that "progress in implementing IMF recommendations has been limited." A real time gross settlement (RTGS) system is not available in Lebanon, and large-value funds transfers are mainly processed by check clearinghouse and other systems, notes a 2008 World Bank report on payment systems worldwide. According to the Central Bank of Lebanon (BDL) website, the central bank owns and operates the payment and settlement system in Lebanon, and it is also responsible for the safety and soundness of the system. Further, Law No. 133/99 of 1999 expands the role and responsibilities of the BDL, granting it greater powers for developing and regulating payment systems. A 2003 report by the CPSS mentions the BDL's 2002 approval of a plan to launch the Secure Electronic Banking and Information for Lebanon (SeBIL), which would lay the foundation for Lebanon's RTGS system, to be developed in compliance with the CPSIPS. The BDL website states that the central bank has taken a number of steps to develop a secure and reliable RTGS system, such as employing a specialized international company to prepare a feasibility study on the implementation of a RTGS system aligned with the CPSIPS.

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Financial Regulation and Supervision

IDCore Principles for Effective Banking Supervision

In 1999, the IMF conducted a Financial Sector Assessment Program (FSAP) for Lebanon, wherein it assessed banking supervision in the country. An update was also conducted in 2001, although these reports were not published by the IMF. Nevertheless, a 2008 report published by the Commission of the European Communities mentions that Lebanon is implementing the recommendations of the IMF FSAP. A 2006 review of the regulatory framework governing the banking sector in Lebanon commissioned by the Association of Banks in Lebanon and the International Finance Corporation concludes that it is "suitable," with "acceptable" minimum requirements for banks and "sound" supervisory division of responsibility and interaction. The U.S. Department of Commerce (DoC), in its 2009 Country Commercial Guide, further indicates that Lebanon's banking sector is sound with high capital adequacy ratios, and a transparent regulatory framework in line with the Bank for International Settlements standards. Furthermore, a 2007 report by the U.S. Department of State (DoS) notes that the country is 'compliant' with 24 of the 25 Basel Core Principles (BCPs). However, this statement from the DoS has yet to be substantiated with a comprehensive assessment of the country's compliance with the BCPs. The DoC report refers to an unpublished self-assessment by the Banking Control Commission of Lebanon (BCCL) against the BCPs as well as an action plan to achieve full compliance with the principles during 2009. The report, as well as information provided on the BCCL website, also reveal the country's compliance with Pillars I and II of Basel II, and its plans to implement Pillar III by 2009.

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IDObjectives and Principles of Securities Regulation

The Institute of International Finance's 2005 report on corporate governance in Lebanon observes that the enforcement of capital market regulations is inhibited by an underdeveloped institutional framework, and especially the lack of an independent securities authority. The Ministry of Finance (MoF), the Central Bank of Lebanon, and the Banking Control Commission of Lebanon share the responsibility of regulating and supervising the securities market. In 2004, the MoF enlisted the assistance of the Financial Sector Reform and Strengthening (FIRST) Initiative to promote capital markets development in the country and to re-establish Beirut as a regional financial center. Per the FIRST Initiative recommendations, the government launched efforts to issue new stock exchange regulations as well as new laws to improve securities regulation. One significant effort has been to bring the Capital Market Draft Law, which has been pending for years, up for parliamentary approval, according to a 2009 report by the U.S. Department of Commerce. A 2008 MoF report indicates that the Capital Market Draft Law is a framework law to which provisions will be added as the capital market matures. The Law is expected to establish the Capital Markets Council, an independent regulatory authority with statutory powers to develop and regulate the capital markets. It was awaiting parliamentary approval as of late 2008. However, there is no update on the actual passage of the law.

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IDInsurance Core Principles

In their joint (and unpublished) 1999 Financial Sector Assessment Program (FSAP), the World Bank and the International Monetary Fund concluded that the insurance sector in Lebanon was characterized by inadequate regulation and supervision (as mentioned in a 2006 Financial Sector Reform and Strengthening (FIRST) Initiative report). A 2005 Institut de la Mediterranee & Economic Research Forum (IM & ERF) report also observed that the insurance industry in Lebanon demonstrates inadequate transparency and disclosure, as well as financial and risk reporting. In 2003, the FIRST Initiative, as noted in its 2006 report, launched a "Review and Drafting of a New Insurance Law" project for Lebanon, which was completed in April 2006. The aim of the project was to strengthen the insurance sector in Lebanon through improved regulation and supervision and to assist Lebanon in drafting a new Insurance Law and related regulations incorporating the 2003 Insurance Core Principles (ICPs) of the International Association of Insurance Supervisors (IAIS). As a result of the project's implementation, a new Insurance Law was drafted. Regulations related to the law were also prepared but only to a limited extent due to considerable re-drafting issues. The new draft law was expected to address weaknesses identified in the 2006 FIRST Initiative report. Per the IM & ERF report, the new draft law is "inspired in large part" by the IAIS's ICPs. According to a 2008 Ministry of Finance publication on reforms, the draft legislation also provides for an independent Insurance Regulatory Commission with the necessary powers to undertake supervision of the insurance sector. The draft law was expected to be finalized by the end of May 2006, as stated in the 2006 FIRST Initiative report. However, as of May 2009, there is no publicly available information regarding the implementation of the Law.

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Business Indicators

With an overall score of 5.57/12 Lebanon is below standard on the economic, legal, and political indicators that make up our Business Index. Lebanon has a market-based statist economy, in which total government expenditure, including consumption and transfer payments, is high. Government spending equaled 34.6 percent of GDP. Lebanon is open to foreign investment and provides national treatment to foreign investors. However, there are restrictions against foreign investment in several sectors, as well as unofficial barriers such as outdated legislation and a weak judicial system. On the other hand, Lebanon offers a variety of incentive packages, including tax incentives. Secured interests in property are enforced, but intellectual property rights enforcement in weak. Political instability may be another deterrent from investment. Corruption is extensive, as reflected in Lebanon's ranking of 102nd out of 180 countries in Transparency International's 2008 Corruption Perceptions Index.

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Global Indices & Quick Facts

Lebanon ranks in the 2nd or 3rd quintile for the global indices that benchmark its political, economic, business, and human capital climates, as shown below. Lebanon's rank in the 3rd quintile of the UNDP's Human Development Index places it in the category of "medium human development," which is roughly on par with the other countries in the region. The World Bank's latest Doing Business Index reports that the ease of doing business has deteriorated. In particular, the World Bank finds that the challenges of launching a business have increased. Perceived corruption as measured by Transparency International's Corruption Perceptions Index has also increased over the past year.

Name Year Rank Score Quintile
Bertelsmann Transformation Status Index 2010 45/128 6.21/10 2
Heritage Foundation Economic Freedom Index 2010 89/179 59.5% 3
Economic Freedom of the World Index 2009
World Economic Forum Global Competitiveness Index 2009
Milken Institute Capital Access Index 2009 39/122 5.54/10 2
World Bank Ease of Doing Business Index 2009 108/183 N/A 3
UNDP Human Development Index 2009 83/177 0.80/1 3
Transparency International Corruption Perceptions Index 2009 130/180 2.5/12 4
Freedom House Index 2009 Partly Free 4.5/7

Credit Ratings

B-/Stable Fitch

B1/Positive Moody's

B-/Stable Standard & Poor's

Macroeconomic Data

2009 GDP (Current Prices): 32.7 billion USD (IMF)

2009 GDP (Per Capita): 8,467 USD (IMF)

2010 GDP (Growth Forecast): 4.0% (IMF)


2009 Inflation (CPI): 2.5% (IMF)

2008 Unemployment: 9.2% (CIA)


2008 Foreign Direct Investment

FDI (Inward): 3.6 billion USD (UNCTAD)

FDI (Outward): 1.00 billion USD (UNCTAD)


2007 Official Development Assistance

ODA (Received): 939 million USD (OECD)

ODA (Disbursed): N/A million USD (OECD)

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