Lebanon's economy and markets are best described at the dawn of the new millennium by a private and liberal economic activity and an openness to abroad with perfect capital and labor mobility. The private sector contributes to around 75% of aggregate demand, a well-diversified sector that covers the totality of economic sectors and is a major pillar for growth and recovery. The Lebanese economy is also a typical open economy with a large banking sector equivalent to more than 2.5 times its economic sector and providing an important support to aggregate demand.

Within this business environment, Lebanon is a country:

- that has today reconstructed its infrastructure, with 80% of the basic infrastructure rehabilitated using the best technologies

- that has revised basically most of its business laws and regulations,

- that has a reputable banking sector with high financial standing, strictly regulated by the Central Bank,

- that has initiated a process of domestic capital market development and accessed frequently international markets,

- and that has recently launched in-depth growth-oriented measures aimed at stimulating the economy.

The Lebanese economy has been facing some signs of sluggishness over the past couple of years, but are mainly tied to short term challenges. Growth has contracted in real terms, due to a decline in aggregate demand in both its consumption and investment components. The newly appointed government launched a series of ambitious measures aimed at improving household and business sentiment and stimulating growth, drawing on a largely underutilized capacity estimated at close to 35% of potential. The expansionary government policies (deregulation, tariff reduction, launch of frozen capital spending, open sky policy, interest rate subsidies for productive lending, etc…) are expected to have a direct positive impact on economic activity, though at the detriment of a tougher fiscal consolidation in the near term.

Indeed, fiscal conditions at year end-2000 continue to be underlined by significant revenue-spending imbalances, leading to further rises in government indebtedness. Deficit reported 24% of GDP in 2000 raising the debt ratio to close to 150%. The country still awaits the adoption of drastic privatization and debt management measures that would aim at cutting the observed vicious circle of debt servicing/deficit/ debt growth. Such a scenario could be actually encouraged by the materialization of a high real output growth target generating important revenue surpluses for the Lebanese State in the medium run.

The challenges that the economy is currently facing are believed to be more of a short term and cyclical nature. An upward shift is actually quite plausible once the general environment factors are alleviated. The Israeli withdrawal from South Lebanon, the further liberalization of the Lebanese economy through the alleviation of trade and non-trade barriers, the potential launch of privatization of public utilities and the arising signs of economic openness in Syria, all constitute promising developments in this respect. Lebanon’s outlook is finally encouraged by a significant regional role potential driven by its historical comparative edges at large.