Economic Liberalization in Lebanon: Simulating the Impact of Government Reforms

PROJECT ABSTRACT

Although Lebanon ranked first in 2006 among 22 Arab countries in some indicators related to economic freedom produced by the Fraser Institute, the country can still be considered quite far from being a liberal market economy.

From an investment perspective, a number of barriers to entry on the market are artificial and concentrated in the legal and administrative process. Price regulations are still pervasive, and extend not only to public utilities (telecoms, energy, transport, postal services, etc.), but also to goods such as medicinal drugs and tobacco products.

Exclusive import agencies are still prevalent, and they are considered as vertical restrictions having legal and administrative origin and protection. The government has excessive regulation, privileges and legal monopolies, which undermine the competitive conditions of the Lebanese economy. Monopolistic or oligopolistic structures are widespread, while the potential economies of scale in the industry as well as in services are not fully exploited; as most markets are more concentrated than necessary given their size. Many cartels are also prevalent and the abuse of dominant position is widely suspected.

All these factors have serious negative consequences on consumer welfare, economic growth, exports and Small and Medium Enterprise (SME) development.

This project intends to build a research and policy partnership between FNF and LEA, in view to use modern techniques in applied economics to forecast the economic performance of Lebanon, and to simulate the welfare impacts of reforms related to the liberalization of the Lebanese economy.

The project will gather detailed data on indicators that will help policymakers initiate, evaluate and monitor economic reforms; in addition to a general macroeconomic simulation of the expected gains (or losses) of various policy reforms.

I. Introduction

II. Background and Developments in the
1990s

III. Developments in 2000-2006

IV. Main Features and Constraints

V. Fiscal Policy Assessment and Reforms
1. Tax Policy
2. Debt Management and Sustainability
3. Assessment of Fiscal Policy and Reforms

VI. Monetary Policy Assessment and Reforms
1. Central Bank Independence
2. Monetary Instruments
3. Banking Supervision
4. Exchange Rate Policies
5. Reserve Management-Asset Valuation
6. Assessment of Monetary Policy and Reforms

VII. Financial Markets
1. Banking Sector
2. Capital Markets
3. Financial Soundness and Vulnerability

VIII. Trade Policies and International Agreements
1. Exclusive Agencies
2. Agreements

IX. Sectoral policies – Private Sector

X. Laws and Regulations
1. Investment Regulation (licensing) and promotion
2. Labor Laws
3. Commercial Laws and Courts
4. Wage and Price Controls

XI. Public Sector Reform, Regulations, and Privatization
1. Electricity, Water, Telecommunications, MEA, Education, Health
2. Pension and Social Security Reforms
3. Environment – Waste Management

XII. A Simulation Model for the Economy of Lebanon
1. The 2007 Reform Program
2. Alternative Policy Scenarios
3. Reforms and Transparency

XIII. Reform’s Impact on Economic Freedom and Liberalization – Index of economic Freedom
1. Impact of Government Reforms
2. Alternative Scenarios: Improve Index of Economic Freedom

XIV. Conclusion
Appendix I: Model Specification and Results
Appendix II: Database