Lebanon achieves very low overall compliance with international standards and codes, with a score of 13.33 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, Lebanon is committed to developing an effective money laundering and terrorism finance regime. The Lebanon Corporate Governance Task Force has proposed an action plan to reform its corporate governance regime. The Central Bank of Lebanon has approved the final road map for creating a real time gross settlement system compliant with international standards. Finally, a draft insurance law promises to bring Lebanon in conformity to the Insurance Core Principles.

Macroeconomic Policy and Data Transparency

Lebanon does not subscribe to the International Monetary Fund's (IMF) Special Data Dissemination Standard (SDDS). It does subscribe to the less rigorous General Data Dissemination System (GDDS), however, 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, etc. 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. According to the IMF sources, the government is moving forward with a number of reforms in order to improve its data compilation and treatment, but significant technical assistance remains needed. More »

The Law for the Code of Money and Credit provides the Central Bank of Lebanon (CBL) with financial and administrative autonomy, but the International Monetary Fund (IMF) reported in its 2005 Report on the Observance of Standards and Codes (ROSC) that there have been times in the past when the CBL 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. In addition, representatives of ministries serve on the CBL board of directors. The 2005 IMF ROSC does note that such representatives are prohibited by law from interfering with the CBL management. It does nonetheless contribute to a certain lack of clarity of responsibilities in monetary and fiscal policy. In this context, to better separate the roles played by the CBL and the Ministry of Finance, the IMF's Executive Board, during the discussions of the 2007 Article IV consultations, favored the CBL to refrain from quasi-fiscal activities, and supported the establishment of a joint working group in the Ministry of Finance and the CBL to better coordinate interventions in the financial market. The IMF Directors also cautioned for the central bank to reduce the direct financing of the government in order to maintain a healthy balance sheet. In sum, 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. More »

The International Monetary Fund (IMF), in 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 IMF's ROSC cites the need for improvement in order to meet the Fund's Code requirements. 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. 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. More »

Institutional and market infrastructure

Lebanon lacks any modern legislation specifically covering bankruptcy and insolvency. 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 & the Economic Research Forum of Egypt. However, 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, at the time of the report, 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. More »

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) (formerly known as International Accounting Standards, or IASs). Although listed companies are required to follow IFRSs, banks must follow rules set by the Banking Control Commission, which differ in some instances from IFRSs, according to the World Bank. Small companies are exempt from IFRSs requirements. The World Bank noted 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 PricewaterhouseCoopers presentation, reiterated that mandatory implementation as well as effective enforcement of IFRSs was limited to publicly listed companies and banks. Among other suggestions, the World Bank recommended 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. More »

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 judiciary 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. 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. Furthermore, the IFC cooperates with Lebanon through an advisory project on corporate governance. More »

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 there were no standards specified in the Lebanese legislation that had to be followed when auditing other entities, although many audit firms made 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 is still work-in-progress. The World Bank noted that, in general, Lebanon had made "commendable progress" in implemening international standards. However, significant compliance gaps existed both in accounting and auditing practices, although fewer gaps were observed with banks and listed companies. Among other issues, the World Bank recommended reviewing 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 accounting and auditing oversight body, and upgrading the licensing procedure for auditors in public practice. More »

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. However, apart from these statements from the MENAFATF, there is little information addressing Lebanon's actual compliance with the FATF's recommendations. As noted in the 2007 U.S. Department of State (DoS) International Narcotics Control Strategy Report, Lebanon was removed from the list of Non-Cooperative Countries and Territories in 2002, and has since made progress in implementing the FATF's recommendations on anti-money laundering (AML) and combating the financing of terrorism (CFT). According to the same report, Lebanese laws provide for the confiscation, freezing, and seizing of proceeds of crime. The Special Investigation Commission (SIC), Lebanon's Financial Intelligence Unit (FIU), implemented a Remote Access Communication system in 2005 to improve the exchange of information on AML/CFT issues. This resulted in an increased number of suspicious transaction reports. Since 2006, per the same report, the SIC has been working on a self-assessment to further improve its compliance with the FATF recommendations in light of a possible assessment by international bodies by late 2007 or early 2008. According to the 2007 U.S. DoS report, shortcomings remain, however, with regard to prosecutions and convictions. The report recommends improving cooperation between financial investigators, the police, and customs; enforcing cross-border currency reporting; and becoming a party to the United Nations (UN) Convention against Corruption as well as the UN International Convention for the Suppression of the Financing of Terrorism. More »

According to the Central Bank of Lebanon (CBL) 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 CBL, granting it greater powers for developing and regulating payment systems. The 2003 Committee on Payment and Settlement Systems (CPSS) report on "Payment Systems in Lebanon" notes that one of the key functions of the CBL is the provision of banking and settlement services. The 2006 Article IV Consultation report by the International Monetary Fund (IMF) mentions that the IMF has been providing technical assistance to Lebanon since 2004 in the area of payment systems, recommending ways to improve the efficiency as well as the liquidity management of the systems. The 2006 Article IV report also indicates that the IMF assessed the systems as to their compliance with the Core Principles for Systemically Important Payments Systems (CPSIPS) promulgated by the CPSS. However, there is little information publicly available regarding the results of this assessment. The 2003 CPSS report mentions the CBL's 2002 approval of a plan to launch the Secure Electronic Banking and Information for Lebanon (SeBIL), which would lay the foundation to Lebanon's real time gross settlement (RTGS) system, to be developed in compliance with the CPSIPS. In this context, the CBL website states that the central bank has taken a number of steps to develop a "secure and reliable RTGS system," such as employing the services of an international company specialized in developing the RTGS infrastructure to study the possibility of making a RTGS system operational in Lebanon that is aligned with the CPSIPS. More »

Financial Regulation and Supervision

The International Monetary Fund (IMF) conducted a Financial Sector Assessment Program (FSAP) of Lebanon in 2000, and in 2001 conducted an update of the FSAP. The IMF in a 2000 report notes that the FSAP assessed banking supervision in Lebanon. However, this report has not been published on the IMF website. According to the 2007 U.S. Department of Commerce Country Commercial Guide, the banking system in Lebanon is sound, with a high capital adequacy ratio, and a transparent regulatory framework in line with international standards. The U.S. Department of State (DoS), in its 2007 International Narcotics Control Strategy Report, indicates that Lebanon has adopted the Basel Core Principles (BCPs) and is "compliant" with 24 of the 25 BCPs. Furthermore, as noted in a 2005 report by the Institut de la Mediterranee & Economic Research Forum, the Banking Control Commission (BCC), which was formed as an independent body within the Central Bank of Lebanon (CBL) and acts as the supervisory authority in Lebanon, has issued a number of regulations in line with the BCPs. The BCC performed a self-assessment on October 31, 2006, and has set up a committee, together with the CBL, to ensure compliance with Basel II recommendations by January 1, 2008. Nonetheless, there is little information publicly available apart from these statements in the 2007 U.S. DoS report regarding BCP compliance. More »

The Institute of International Finance's (IIF's) 2005 report on corporate governance in Lebanon indicates that the enforcement of capital market regulations is inhibited by the underdeveloped institutional framework, and especially the lack of an independent securities authority. The Ministry of Finance (MoF), Beirut Stock Exchange, and Central Bank of Lebanon share the responsibility of regulating the securities market. The IIF report indicates that the Lebanese government is involved in drafting stock exchange regulations and has passed several new laws to improve securities regulation. Lebanon's efforts to improve the regulation of the capital market is demonstrated by the Council of Ministers' approval of the Capital Market Draft Law on March 1, 2006, which had previously been pending for years. A 2006 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 will establish the Capital Markets Council, a capital markets regulatory authority, and will empower it to issue detailed regulations to govern the capital market. More »

In their joint 1999 Financial Sector Assessment Program (FSAP), the World Bank and the International Monetary Fund concluded that the insurance sector in Lebanon is characterized by inadequate regulation and supervision. 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 Financial Sector Reform and Strengthening Initiative (FIRST), 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 report. According to a 2006 Ministry of Finance report on Key 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 report. However, as of November 2007, there is still no publicly available information regarding the implementation of the Law. More »

Legend:

Credit Ratings

Moody's B3/Stable

Fitch B-/Stable

Standard & Poor's CCC+/Stable

Macroeconomic Data

2007 GDP (Current Prices): 24.64 billion USD (IMF)

2007 GDP (Per Capita): 6,569 USD (IMF)

2008 GDP (Growth Forecast): 3% (IMF)

2008 Inflation (CPI): 5.5% (IMF)

2007 Unemployment: 20% (CIA)

2006 Foreign Direct Investment

FDI (Inward): 2.794 billion USD (UNCTAD)

FDI (Outward): 0.0071 billion USD (UNCTAD)

2006 Official Development Assistance

ODA (Received): 707 million USD (OECD)

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