Informal economy counts

Unaccounted economy makes up 30 percent of country’s GDP, is mainly induced by rigid labor regulations: IMF report says

The size of the informal economy in Lebanon is estimated to be equivalent to 30 percent of GDP, according to a report by the International Monetary Fund (IMF). The IMF's Regional Economic Outlook Report for the Middle East and Central Asia, released in October, said that around 60 percent of the country’s labor force does not contribute to a retirement pension scheme.

The size of Lebanon’s informal economy is similar to that of Tunisia, and compared to 26 percent of GDP in Jordan, and 34 percent of GDP in each of Egypt and Syria. The IMF said that high levels of informality imply that many workers have little or no social protection or employment benefits.

The informal economy is the segment of an economy that is not taxed, or monitored by any government institution, or included in GDP calculations.

The IMF attributed the large size of the informal economy to rigid labor market regulations, excessive regulatory burden in product market, low quality of institutions and governance, and an excessive tax burden.

The IMF said that about 37 percent of the size of the informal sector is induced by rigid labor market regulations. Low quality of governance is responsible for around 32 percent of the informal economy. The excessive regulatory burden in product markets explains around 20 percent of the size of the informal sector, while the high tax burden explains nearly 12 percent of informal economy.

These factors, according to the IMF, increase the costs of operating in the formal economy and provide strong incentives for workers and firms to operate informally.