(The Daily Star) BEIRUT: The International Monetary Fund estimated the size of the informal economy in Lebanon to be equivalent to 30 percent of GDP, similar to Tunisia, and compared to 26 percent of GDP in Jordan, 34 percent of GDP in each of Egypt and Syria, and 44 percent in Morocco. It attributed the large size of the informal economy to the excessive regulatory burden in product and labor markets, low quality of institutions and governance, and an excessive tax burden, as reported by Lebanon This Week, the economic publication of the Byblos Bank Group. The informal economy is defined as the segment of an economy that is not taxed, or monitored by any government institution, or directly included in GDP calculations.
The IMF said that rigid labor market regulations appear to be particularly relevant in Lebanon, as this burden explains about 37 percent of the size of the informal sector in Lebanon compared to 37 percent in Egypt, 29 percent in each of Morocco and Syria, 15 percent in Tunisia and 20 percent in Jordan.
As such, it noted that the percentage of firms identifying labor regulations as a major constraint to their business operations is, on average, greatest in these countries.
It added that the low quality of institutions and/or governance explains around 32 percent of Lebanon¹s informal economy relative to around 29 percent in Egypt, 27 percent in Jordan, 22 percent in each of Tunisia and Syria, and 17 percent in Morocco.
The IMF noted that the excessive regulatory burden in product markets explains around 20 percent of the size of the informal sector in Lebanon, compared to 32 percent in Syria, 27 percent in Tunisia, 24 percent in Jordan, 22 percent in Egypt and 17 percent in Morocco.
It added that the high tax burden explains nearly 12 percent of Lebanon¹s and Egypt¹s informal economies, relative to 37 percent in each of Morocco and Tunisia, 29 percent in Jordan and 18 percent in Syria.
The IMF said that such factors increased the costs of operating in the formal economy and provided strong incentives for workers and firms to operate informally where such costs can be avoided.
In comparison, the regulatory burden in product markets, institutional quality, and the tax burden explain each, on average, about 24 percent of the overall size of the informal economy in MENA oil-importing countries; while labor market rigidities contribute about 28 percent on average. It said that such higher levels of informality imply that many workers in the MENA region¹s oil-importing countries have little or no social protection or employment, which undermines inclusiveness in the labor market.
It added that 62 percent of the labor force in Lebanon does not contribute to a retirement pension scheme compared to 67 percent in Jordan, 51 percent in Tunisia and 43 percent in Egypt.
In parallel, the IMF indicated that the barriers for businesses and labor to enter the formal sector also constitute barriers to inclusive growth. It encouraged policymakers to implement reforms in order to remove these barriers by improving the regulatory framework for businesses, while at the same time creating an environment that fosters a fairer enforcement of regulations. It also encouraged policymakers to reform labor market institutions, reduce the tax burden and provide workers in the informal sector with access to skills upgrading.
