Poverty, Growth and Income Distribution in Lebanon

Poverty, Growth and
Income Distribution
in Lebanon August 2008
©2008
United Nations Development Programme
All rights reserved. No part of this publication may be reproduced, stored in a retrieval
system, or transmitted in any form or by any means, electronic, mechanical, photocopying,
recording or otherwise, without prior permission of UNDP/Lebanon CO
2 Poverty, Growth and Income Distribution in Lebanon
Study Team
Core Team
Heba El-Laithy
Khalid Abu-Ismail
Kamal Hamdan
Peer Review
Nanak Kakwani
Mohamad Hussein Bakir
Central Statistics Administration Team

Maral Toutelian
Najwa Yaacoub
United Nations Development Programme Team

Marta Ruedas
Mona Hammam
Zena Ali-Ahmad
Manal Fouani
Mona El-Yassir
Michella Haddad
Ghada Naifeh
Research Support and Editing

Dina Magdy
Rabih Fakhry
Mona Naguib
Ghada Khoury
Poverty, Growth and Income Distribution in Lebanon 3
Acknowledgments
This report is the result of intensive collaboration between the Government of

Lebanon, represented by the Ministry of Social Affairs, the Central Administration
of Statistics, UNDP and the World Bank.
The Ministry of Social Affairs and UNDP wish to record their gratitude to the Core
Team responsible for the analysis and drafting of this report; namely Dr. Heba
El-Laithy who was in charge of poverty measurement and analysis, Dr. Khalid
Abu-Ismail who was responsible for macroeconomics and poverty analysis,
and Dr. Kamal Hamdan who was responsible for results validation and policy
recommendations.
We also wish to thank the peer reviewers of the Report, namely Professor Nanak
Kakwani and Dr. Mohamad Hussein Bakir, and Dr. Terry McKinley who supported
the finalization of the executive summary for the report, and its publication as an
International Poverty Center Country Study.
From the Central administration of Statistics, we wish to thank Dr. Maral Toutelian
who provided the Core Team with the necessary data and Najwa Yaacoub who
supported the Core Team in all statistical requirements and in drafting the sam-
pling methodology section.
We also would like to thank the members of the Advisory Group for the Report
composed of the following members: Dr. Jad Chaaban, Dr. Toufic Gaspard, Mr.
Redha Hamdan, Ms. Amal Karaki, Dr. George Kosseifi, Mr. Adib Nehmeh, Dr.
Haneen el-Sayed, Ms. Alexandra Prorsac, Ms. Sawsan Masri, Ms. Maysaa Nehlawi,
and, particularly, Dr. Zafiris Ptzantos who provided the Core Team with extensive
comments and recommendations.
From the World Bank, we thank Mr. Zurab Sajaia, who provided the Team with
consumption aggregates which were used for the analysis in this report.
From UNDP Lebanon, Ms. Zena Ali Ahmad was the Task Coordinator for the
Report supported by Ms. Manal Fouani and Ms. Ghada Naifeh; Ms. Mona El-
Yassir and Ms. Michella Haddad were tasked with follow-up to design, layout and
printing of the Report.
Many thanks go to Dr. Dina Magdy and Mr. Rabih Fakhri for the valuable research
support they provided for the Report, and Ms. Ghada Khoury and Ms. Mona
Naguib for the editing support.
Foreword
The Government of Lebanon is committed to enhancing social development and

the reduction of poverty in the country. However, policy elaboration and progress
monitoring cannot be effectively undertaken without accurate baselines, which
require a strong statistical base, upon which a portrait of the living conditions of
the population can be drawn and improvements on these conditions can be pur-
sued and realized.
Advocacy for poverty reduction and social development is one of the aims of the
joint project initiative between the Ministry of Social Affairs and the United Na-
tions Development Programme (UNDP). Such advocacy, however, would not have
been possible without the publication and wide dissemination of poverty surveys
and studies. Since the mid-1990s, the Ministry of Social Affairs, supported by the
UNDP, and in partnership with the Central Administration of Statistics, has under-
taken a number of seminal surveys and studies; including “The Mapping of Living
Conditions” (1998), which identified deprivation rates at the Kada’ level, provided
evidence of the geographic distribution and concentration of poverty, and estab-
lished that wide disparities exist between the peripheral and central regions of
the country. The “Living Conditions of Households” (2007) highlighted the results
of the Multi-Purpose Survey (2004) and provided a portray of living conditions in
the country. The “Comparative Mapping of Living Conditions between 1995 and
2004” was produced in 2006, using the data generated by the “National Survey
of Household Living Conditions, 2004. It analyzed the changes in the deprivation
levels ten years after the publication of the first mapping study.
The current report, “Poverty, Growth and Inequality in Lebanon,” is the first of its
kind in Lebanon. It draws a profile of poverty based on money-metric poverty
measurements and calculates a national poverty line based on household expen-
ditures. Relying on the expenditure data from the Multi-Purpose Survey, the re-
port provides a comprehensive overview of the characteristics of the poor and
estimates the poverty gap and Gini Coefficient used to measure inequality.
This seminal study is directed towards decision-makers, forming a basis for consid-
ering and choosing from among the development policy and investment options
which promote poverty reduction, inclusiveness, equity and regional balance. It
also aims to spur further research and analyses, as well as to inform development
practitioners with an aim of supporting the achievement of the MDGs.
The report is expected to directly contribute to the reform processes launched

by the Government of Lebanon at the Paris III donor conference. The Govern-
ment’s medium-term reform programme includes, for the first time, a Social Ac-
tion Plan that places the objective of poverty reduction, social justice and equity
at the heart of the reform process. The Social Action Plan focuses on pursuing a
coordinated inter-ministerial approach to improving efficiency, cost effectiveness
and coverage in the delivery of social services, including better targeted safety
Foreword 5
nets for the most deprived and vulnerable population groups. It also calls for the
elaboration of a comprehensive and longer-term Social Development Strategy
that consolidates the inter-ministerial and cross-sectoral coherence needed for a
concerted effort to achieve the targets set for reducing poverty and regional dis-
parities as intrinsic and essential factors for attaining inclusive and sustained eco-
nomic growth, social equity and social justice. One important goal of the reform
process is also to increase the effectiveness and coverage of social safety nets for
the poor and marginalized.
We hope that this report will constitute the first step towards establishing a
mechanism for measuring poverty at regular intervals, as a means to both
track progress towards poverty reduction targets and make corrective policy
adjustments accordingly. The calculation of money metric poverty indicators is
only the start of a momentum that should not stop until the battle against poverty
is won.
We would like to extend our gratitude to the Core Team who produced the study
and to thank the members of the Advisory Team for their valuable guidance. We
would also like to extend our appreciation to our partner, the Central Administra-
tion of Statistic without whose help the production of this report would not have
been possible.
Nayla Mouawad Marta Reudas

Minister of Social Affairs UNDP Resident Representative
Abbreviations and Acronyms
AFC Actual Final Consumption

AUB American University in Beirut
CAS Central Authority of Statistics
CBN Consumption Basic Needs
CPI Consumer Price Index
CPR Combined Poverty Rate
CSC Civil Servant Cooperative
DHS Demographic and Health Surveys
FAO Food and Agriculture Organisation
FCND Food Consumption and Nutrition Division
FGT Foster Greer Thorbecke
FHH Female-Headed Households
FPL Food Poverty Line
GDP Growth Domestic Product
GoL Government of Lebanon
GQ General Quadratic
HBS Household Budget Survey
HCE Household Consumption Expenditure
HDI Human Development Index
HE Household Expenditure
HLCS Households Living Conditions Survey
HPI Human Poverty Index
ICOR Incremental Capital Output Ratio
IFPRI International Food Policy Research institute
ILO International Labour Organization
IMF International Monetary Fund
LBP Lebanese Pounds
LCHBS Living Condition Household Budget Survey
LDC Least Developed Country
MDG Millennium Development Goal
MENA Middle East and North Africa
MoH Ministry of Health
MHH Male-Headed Households
MoSA Ministry of Social Affaires
MPS Multi Purpose Survey
NGO Non- Governmental Organisation
ODA Official Development Assistance
OECD Organization for Economic Cooperation and Development
PHC Primary Health Care
PG Poverty Gap
PSU Primary Sampling Unit
SPG Squared Poverty Gap
UBN Unsatisfied Basic Needs
UNDP United Nations Development Program
WDR World Development Report
Table of Contents 7
Table of Contents
2 Study Team
3 Acknowledgments
4 Foreword
6 Abbreviations and Acronyms
13 Executive Summary
29 Introduction
31 Chapter One: Definitions and Methodology
31 Introduction
31 Measuring Money Metric Poverty
Conceptual Issues
Measuring Welfare
Units of Measurement
Poverty Lines
Poverty Measurements
36 Constructing Poverty Lines
Constructing Food Poverty Lines
Constructing Lower and Upper Poverty Lines
40 Data Issues
42 Chapter Two: Poverty, Growth, Distribution and the

Cost of Poverty Reduction in Lebanon
42 Introduction
42 Expenditure and Income Distribution
45 Poverty and Growth: 1997-2007
Poverty Measurements
Dynamics of Poverty
47 Regional and Sub-Regional Disparities
50 Growth Distribution Elasticity
52 Cost of Poverty Reduction
55 Correlation with Human Poverty Indicators
Combined Income and Human Poverty Rate at the Strata Level
Correlation with Unsatisfied Basic Needs
59 Chapter Three: Poverty Profile and Correlates

59 Introduction
60 Poverty Profile
Education and Poverty
Employment and Poverty
a. Participation Rates and Unemployment
b.Employment Status
c.Sector of Employment
Household Size and Composition
Gender and Poverty
Children and Poverty
a.School Enrolment
b.Child Labour
Housing Conditions, Access to Public Water and Public Facilities
Home Appliances and Transportation Means
Cultural and Leisure Activities
Poverty and Health
Poverty Status from the Household Perspective
74 Poverty Correlates
Regression Results
Simulations
77 Chapter Four: Policy Considerations

77 Introduction
77 Five Pillars of a Poverty Reduction Strategy
79 Targeting Strategies
Two Approaches for Targeting: Broad and Narrow
Types of Narrow Targeting
Proxy Means Test
83 Annexes
107 References
109 Annexes Tables
Table of Contents 9
List of Annexes
Annex 1: Sample Design, Consumption Aggregates and Consistency Checks for
Data
Annex 2: Methodological Issues in Construction of Poverty Lines (N. KAKWANI)
Annex 3: Methodology Used to Estimate Poverty Rates in 1997
Annex 4: Computation of Growth and Distribution Elasticity
Annex 5: Methodology for Estimating the Cost of Poverty Reduction
Annex 6: Vulnerability Assessment Model
Annex 7: Poverty Reduction Strategy Outline
List of Tables
Table 1.1: Daily Caloric Requirements by Age, Sex
Table 1.2: Daily Per-Capita Calorie Intake and Calorie Cost (2004-05)
Table 1.3: Caloric Cost by Strata 2004-2005
Table 1.4: Lower and Upper Poverty Lines for Different Household Compositions
by Governorate, 2004-2005, Thousands LBP per Annum.
Table 1.5: Estimated Average Per Capita Poverty Lines 2005 by Governorate,
LBP per Annum
Table 2.1: Mean and Median Nominal and Real Per Capita Consumption and
Expenditure by Governorate (2004-2005) in Thousand LBP
Table 2.2: Inequality Measures by Governorate (2004-2005)
Table 2.3: Average Annual Percentage Change in Per Capita Private Consumption
by Governorate (1997-2004)
Table 2.4: Poverty Measures by Governorate (2004-05)
Table 2.5: Distribution of Poverty Groups (%) Across Governorates (2004-2005)
Table 2.6: Elasticity of Poverty Measures to Mean Expenditure and Inequality in
Some Arab Countries
Table 2.7: Elasticity of Poverty Incidence to Mean Per Capita Consumption and
Inequality by Governorate (2004-2005)
Table 2.8: Elasticity of Poverty Reduction with Respect to Growth (of 1%) and Per
Capita Growth Rates Required under Alternative Growth Scenarios
Table 2.9: Resource Gap Required to Reach the Poverty Goal under Alternative
Growth Scenarios: 2005-2015
Table 2.10: Per Capita GDP and Financing Gap (in 2004 US$) Required to Achieve
MDG1: Headcount Ratio under Alternative Growth Scenarios, 2005-
2015
Table 2.11: Average Poverty Gap in 2005 (in current US$) by Governorate and
Strata
Table 2.12: Debt (as of June 30, 2006) Maturing in 2007-2010 (US$ billion)
Table 2.13: Deprivation Measures Using Money Metric Poverty and Unsatisfied
Basic Needs Index by Governorate.
Table 3.1: Poverty Measurements by Educational Attainment for All Lebanon
Table 3.2: Unemployment Rate among Youth by Educational Status and Poverty
Status (2004-05)
Table 3.3: Predicted Rates for Different Household Characteristics
List of Boxes
Box 1.1: Approaches to Measuring Poverty
Box 1.2: Treatment of Durable Goods when their Use Value Cannot Be
Estimated
Box 1.3 Other Alternatives of Poverty Lines
Appendix Tables
Appendix Table 1.1 Percentage of Outliers of Unit Prices at Different Levels
Appendix Table 1.2: Median prices of Selected Food Items by Strata
Appendix Table 1.3 Percentage of Outliers of Per Capita Consumption at Different
l\Levels
Appendix Table 4.1 Poverty Measures for Alternative Parameterizations of the
Lorenz Curve
Appendix Table 4.2: Elasticities of Poverty Measures with Respect to the Mean
and the Gini Index
Annex Tables
Table A.1.1 Distribution of Consumption (2004-2005)
Table A.2.1 Number of Persons and Households in the Sample, by Governorate
and Strata.
Table A.2.2.a Distribution of the Poor Using Different Notions by Governorate
Table A.2.2.b Distribution of the Poor Using Different Notions, by Strata
Table A.2.3 Poverty Measures by Strata, Using Different Poverty Lines
(2004-05)
Table A.3.1 Educational Attainment of Individuals 10 years and more by Place
of Residence and by Poverty Status, 2004
Table A.3.2.a Educational Attainment of Head of Households by Place of
Residence and Poverty Status, 2004
Table A.3.2.b Poverty Measurements of Educational Attainment of Head of
Households by Place of Residence, 2004
Table A.3.3 Poverty Measurements by Educational Attainment of Individuals
10 years and more by Place of Residence, 2004
Table A.3.4 Educational Attainment of Individuals 10 years and more by
Gender and by Poverty Status, 2004
Table A.3.5 Distribution of Heads of Household by their Education, versus
Education of Household Members 10 years and more, 2004
Table A.3.6 Distribution of Individuals 10 years and more by their own
Education versus Education of Heads of Household, 2004
Table A.3.7 Working Status of Individuals 15 years and more by Gender, Place
of Residence and by Poverty Status, 2004
Table A.3.8 Poverty Measurements by Working Status of Individuals 15 years
and more by Place of Residence, 2004
Table A.3.9 Unemployment Rate of Youth (15-24 years) by Education Status,
Place of Residence and Poverty Status, 2004
Table A.3.10 Distribution of Actual Labor Force (Working Individuals) of Age 15
years and more by Professional Status, Place of Residence and by
Poverty Status, 2004
Table A.3.11 Working Status of Household Heads by Place of Residence and
Table A.3.12.a Distribution of Employed Household Heads by Professional Status,
Place of Residence and by Poverty Status, 2004
Table A.3.12.b Poverty Measurements of Employed Household Heads by
Profession Status and Place of Residence, 2004
Table A.3.13.a Distribution of Actual Labor Force (Working Individuals) of Age 15
years and more by Economic Sector of the Employing Institution
by Place of Residence and by Poverty Status, 2004
Table A.3.13.b Poverty Measures of Actual Labor Force (Working Individuals)
of Age 15 years and more by Economic Sector of the Employing
Institution by Place of Residence, 2004
Table A.3.14 Average Household Size and Composition by Place of Residence
and Poverty Status, 2004
Table of Contents 11
Table A.3.15 Number of Children by Poverty Status and Place of Residence,

2004
Table A.3.16.a Household Size by Poverty Status and Place of Residence, 2004
Table A.3.16.b Poverty Measures by Household Size and Place of Residence,

2004
Table A.3.17 Poverty Measurements by Gender of Head of Households, 2004
Table A.3.18 Enrolment rate by Gender, Poverty Status and Place of Residence,
2004
Table A.3.19 Item to be Spent on Primarily in Case of an Increase in Income
During the Coming 12 Months by Poverty Status, 2004
Table A.3.20 Percentage of Students (aged 4 years and above) Currently Joining
Private Educational Institution by Gender and Poverty Status,
2004
Table A.3.21 Percentage of Working Youth of Age 15-19 by Gender, Place of
Table A.3.22 Source of Drinking Water by Place of Residence and Poverty
Status, 2004
Table A.3.23 Sewerage System by Place of Residence and Poverty Status, 2004
Table A.3.24 House Type by Place of Residence and Poverty Status, 2004
Table A.3.25 Ownership of Primary Dwelling by Place of Residence and Poverty
Status, 2004
Table A.3.26 Ways of Dumping Waste by Place of Residence and Poverty Status,
2004
Table A.3.27 Percentage of Individuals Exposed to Noise Resulting from
Different Things by Place of Residence and Poverty Status,
2004Table A.3.28 Distribution of Individuals According to the
Existence of Illumination in the Vicinity by Place of Residence and
Table A.3.29 Availability of Home Appliances by Poverty Status, 2004
Table A.3.30 Ownership of Transportation Means by Poverty Status, 2004
Table A.3.31 Percentage of individuals 5 years and more who Practiced
the Leisure Activity the Week prior to the Interview by Place of
Table A.3.32 Percentage of Individuals 5 years and more who Practiced the
Leisure Activity the Week Prior to the Interview by Gender and
Table A.3.33.a Percentage of Individuals Suffer from Disability or Chronic
Diseases by Place of Residence and Poverty Status, 2004
Table A.3.33.b Poverty Measures of Individuals Suffer from Disability or Chronic
Diseases by Place of Residence, 2004
Table A.3.34 Percentage of Individuals Suffer from Chronic Diseases who
Benefiting from Special Programs by Place of Residence and
Table A.3.35 Percentage of Individuals Benefiting from at least One Type of
Health Insurance by Gender, Place of Residence and Poverty
Status, 2004
Table A.3.36 Distribution of Individuals According to Benefiting from at least
One Type of Health Insurance by Type of Health Insurance, Gender
and Poverty Status, 2004
Table A.3.37 Predictions about the Living Standard of the Coming Year from
Household’s Point of View by Place of Residence and Poverty
Status, 2004
Table A.4.1 Regression Results
List of Figures
Figure 1.1: Per Capita Lower Poverty Line by Household Size, LBP per
Annum
Figure 2.1: Consumption Distribution Curves (A: Consumption Shares (by
Decile) B: Lorenz Curve)
Figure 2.2: Distribution of Population between Poor and Non-Poor Categories
(2004-2005
Figure 2.3: Per Capita Nominal Expenditure (Relative to Mean Per Capita
Expenditure) by Governorate in 1997 and 2004-2005
Figure 2.4: Projected Evolution of Extreme Poverty in Lebanon (1997-2007)
Figure 2.5: Extreme Poverty (P0-Lower) and Overall Poverty (P0-Upper) by
Governorate in 2005
Figure 2.6: Distribution of Poverty Groups across Governorates 2004-05
Figure 2.7: Overall Headcount Poverty Rates (%) by Strata
Figure 2.8: Poverty Concentration Curve (A: Using Lower Poverty Line; B: Using
Upper Poverty Line)
Figure 2.9: Poverty Incidence Curves by Governorates, 2004-05
Figure 2.10: Combined Poverty Rate (%) by Strata in 2005
Figure 2.11: UBN and Overall Headcount Poverty (% under Upper Poverty
Line) by Strata in 2004-2005
Figure 2.12: Adjusted UBN (for Consumer Durables and Vehicles only) and
Headcount Poverty (% Under Upper Poverty Line) by Strata in 2005
Figure 3.1: Illiteracy Rate by Poverty Status (for Individuals and Households
heads)
Figure 3.2: Poverty Incidence (risk) by Individual Education Levels by
Governorate (2004-05)
Figure 3.3: Unemployment Rates by Poverty Status, Gender and Place of
Residence, %.
Figure 3.4: Poverty Measure by Employment Status, 2004-05
Figure 3.5: Poverty Incidence by Economic Activity
Figure 3.6; Average Household Sizes by Poverty Status, by Governorate
Figure 3.7: Distribution of Households by their Structure and Poverty Status
Figure 3.8: Benefit Incidence Curve for Public Education Spending
Figure 3.9: Indicators for Youth aged 15-19 years (By Gender) A: Enrolment
rate; B: Percentage of Working Youth
Figure 3.10: Percentage of Individuals Who Practiced Different Leisure
Activities, by Poverty Status
Figure 3.11: Self Perception Poverty Classifi
Executive Summary 13
Executive Summary
Introduction
This report was able to draw on the results of several surveys and studies sup-
ported since the early 1990s by the Ministry of Social Affairs with support from
UNDP and the Central Administration of Statistics.
The Ministry recognized that poverty reduction cannot be accomplished without
a strong statistical base, upon which a portrait of the living conditions of the
population could be drawn and improvements in these conditions could be
pursued and realized.
The first major survey, in this regard, was “The Mapping of Living Conditions”, which
was conducted in 1998. It identified deprivation rates at the kada level, provided
evidence of the geographic distribution of poverty and established that wide dis-
parities existed between the peripheral and central regions of the country.
The 2006 study “Comparative Mapping of Living Conditions between 1995 and
2004” used 2004/05 data generated by the “National Survey of Living Conditions
and Household Budget Survey”. The study analyzed the changes in the depriva-
tion levels in Lebanon ten years after the first mapping study.
The full 2007 national report, “Poverty, Growth and Income Distribution in Leba-
non,” is the first of its kind in Lebanon. It draws a profile of poverty based on
money-metric poverty measures and calculates a national poverty line based on
household expenditures. Relying on the expenditure data from the 2004/05 Na-
tional Survey, the report provides a comprehensive overview of the characteris-
tics of the poor and estimates poverty gaps and Gini Coefficients of inequality.
The report is expected to directly contribute to the reform processes launched
by the Government of Lebanon at the Paris III donor conference in January 2007.
The Government’s medium-term reform programme includes, for the first time,
a Social Action Plan that places the objective of poverty reduction, social justice
and equity at the heart of the reform process. The Social Action Plan focuses on
pursuing a coordinated inter-ministerial approach to improving efficiency, cost
effectiveness and coverage in the delivery of social services, including better tar-
geted safety nets for the most deprived and vulnerable population groups.
Just as importantly, the Plan calls for the elaboration of a comprehensive and lon-
ger-term Social Development Strategy that could consolidate the inter-ministerial
and cross-sectoral coherence needed for a concerted effort to achieve the targets
set for reducing poverty and regional disparities. This effort would be part of the
broader strategy for attaining inclusive and sustained economic growth, social
equity and social justice.
Main Results and Forecasts
This report is the first to draw a profile of poverty in Lebanon based on money-
metric poverty measurements of household expenditures. The report provides
a comprehensive overview of the characteristics of the poor and estimates the

extent of poverty and the degree of inequality in the country. It finds that nearly
28 per cent of the Lebanese population can be considered poor and eight per
cent can be considered extremely poor. However, the most important finding of
the report is that regional disparities are striking. For example, whereas poverty
rates are insignificant in the capitol, Beirut, they are very high in the Northern
city of Akkar. In general, the North governorate has been lagging behind the rest
of the country and thus its poverty rate has become high. Levels of poverty are
above-average in the South but are not as severe as expected.
There are three other major results that have notable implications for a poverty-
reduction programme in Lebanon. First, with few exceptions, measures of human
deprivation, such as that provided by an Unsatisfied Basic Needs methodology,
are generally commensurate with those for money-metric measures based on
household expenditures.
Second, the projected cost of halving extreme poverty is very modest, namely,
a mere fraction of the cost of the country’s large external debt obligations. How-
ever, such a cost would rise dramatically if inequality were to worsen (i.e., if future
growth were anti-poor). Also, the cost of reducing overall poverty is substantially
higher due to the fact that approximately 20 per cent of Lebanese lie between the
lower (extreme poverty) and upper (normal) poverty lines.
Third, the poor are heavily concentrated among the unemployed and among un-
skilled workers, with the latter concentrated in sectors such as agriculture and
construction. This places a priority on a broad-based, inclusive pattern of eco-
nomic growth that could stimulate employment in such sectors. Based on such
findings, the report concentrates on providing general policy recommendations
on issues of directing public expenditures to poor households.
One of its major recommendations is to concentrate on channeling resources

to poor regions below the governorate level, such as to four ‘strata’ where two-
thirds of the poor in Lebanon are concentrated. However, the report notes that
macroeconomic policies, particularly fiscal policies, will have to be redesigned to
mobilize the resources necessary to finance the increases in public expenditures
on the social safety nets and public investment in social services that would be
part of a major poverty-reduction programme.
Expenditure Levels and Inequality

The welfare measure used in this Country Study is household consumptioni . In
2004-5, average per capita annual nominal consumption reached 3,975,000 LBP
(approximately US$ 2,650). Taking regional price differentials into consideration,
we find that annual per capita real consumption is one per cent lower, at 3,935,000
LBP (Table 1).
Table 1
Mean and Median Nominal and Real Per Capita Consumption by Governorate
(2004 - 2005) in Thousand LBP
i
Taking into account household size, age and gender Governorate Nominal Per Capita Consumption Consumption Adjusted for
composition, consumption estimates here include Regional Price Differences
food and non-food consumption, imputed rents, Mean Median Mean Median
imputed value of home-grown food and in-kind
transfers received by households. However, due to data Beirut 6514 5240 6141 4939
limitations, the flow of services from consumer durables Mount Lebanon 4512 3661 4321 3506
is not taken into account, with the one exception of Nabatieh 3924 3349 4075 3478
services provided by means of transportation (such Bekaa 3385 2747 3558 2888
as cars and trucks). Actual consumption does not South 3007 2276 3151 2385
include gifts to other households of food and other North 2532 1933 2671 2039
commodities, advance payments and purchases of All Lebanon 3975 3101 3935 3073
durables. Source: Authors’ estimates based on CAS, UNDP and MoSA Living Conditions and Household Budget Survey (2004-5).
Mean per capita consumption is highest in Beirut (more than one and one-half
times the national average) and lowest in the North (three-quarters of the na-
tional average). The North, South and Bekaa governorates have per capita real
consumption below the national average. As Table 1 shows, the median per capita
consumption is always lower than the mean because most Lebanese consume less
than the average. For example, the consumption expenditure of half of the Leba-
nese population is approximately 20 per cent of the average consumption level.
The distribution of expenditure among the population is relatively unequal. The

bottom 20 per cent of the population accounts for only seven per cent of all con-
sumption in Lebanon while the richest 20 per cent accounts for 43 per cent (over
six times higher). However, inequality is comparable to that in other middle-in-
come countries. The Gini coefficient, a standard measure of inequality, is estimat-
ed to be 0.37 for nominal consumption and 0.36 for real consumption.
These levels of inequality are comparable to the average of MENA countries (for
which the Gini is 0.37) and much lower than that of Latin American countries
(where the average Gini is 0.55). Relatively equitable distribution up to the 5th
decile (Figure 1) also implies that there is a high concentration of the population
around any consumption threshold for poverty drawn below this level. This ex-
plains why in Lebanon 20 per cent of the population is bunched between the
lower (extreme) poverty line and the upper (overall) poverty line.
Figure 1
Consumption Shares, by Deciles
30
25
20
% Consumption Share
15
10
5
Deciles
0
1 2 3 4 5 6 7 8 9 10
Source: Authors’ estimates based on CAS, UNDP and MoSA Living Conditions and Household Budget Survey (2004-5)
Within-governorate inequality accounts for most of the inequality in Lebanon.

About 92 per cent of aggregate inequality in consumption can be attributed to
within-governorate inequality, while the reminder, only eight percent, is due to
inter-governorate inequality.
Although the North has the lowest per capita expenditure, it exhibits the highest
inequality compared to that in other governorates (its Gini coefficient is 0.37). By
comparison, Nabatiyeh’s per capita consumption is ranked third in descending
order, yet it has the lowest inequality (with a Gini of 0.29).
Poverty and Growth: 1997-2007

Nearly eight per cent of the Lebanese population live under conditions of extreme
poverty (i.e., below the ‘lower’ poverty line) (Figure 2). This implies that almost
300,000 individuals in Lebanon are unable to meet their most basic food and non-
food needs. The dollar equivalent of the lower poverty line (when converted at
the current official exchange rate) is US$ 2.40 per capita per day. (See Box A for a
discussion of related methodological issues).
With a more ‘normal’ definition of the poverty line, namely, what the World Bank
refers to as the ‘upper’ poverty line, the overall headcount poverty ratio reaches
28.5 per cent (accounting for about one million Lebanese). Consequently, the
consumption levels for 20.5 per cent of the Lebanese population fall between the
lower and upper poverty lines. At the current exchange rate, the upper poverty
line translates into about US$ 4 per capita per day.
BOX A : Determining Poverty Lines in Lebanon Based on Household Composition
Most of the traditional methods for estimating poverty lines suffer from one or more of
three problems:
(i) They ignore significant differences in consumption patterns and prices that exist
across regions; (ii) They do not account for the differing ‘basic needs’ requirements of
different household members – young versus old, male versus female; and (iii) They
ignore the ‘economies of scale’ within households – the fact that non-food items can
be shared among household members (i.e., items such as electricity or rent, which are
‘non-rival’ within the household, so that one person benefiting from the item does not
decrease the consumption of another). Because of this factor, a given standard of living
can be attained by lower expenditures per person in a larger household.
This study used a methodology that attempts to account for these problems. The esti-
mated poverty lines account for regional differences in relative prices, activity levels as
well as the size and age composition of poor households.
Using the raw data for 2004/05, the cost-of-basic-needs method was used to construct
absolute poverty lines. Each resulting poverty line is household-specific, and is the sum
of a food poverty line and a non-food threshold.
For each household in the sample, the study constructed its own food poverty line,
which satisfied the household’s minimum nutritional requirements based on its age,
gender composition and location. To define this threshold, a food basket anchored to
the minimum requirements of calories for individuals corresponding to different age
brackets, gender and activity levels were constructed (using tables from the World
Health Organization). Then, food poverty lines were set at the cost of the required
calories, in accordance with how such calories are actually obtained in the sample (on
average) by the second quintile. This food basket of the second quintile is thus costed
using the differing prices for food in each region. The relative quantities observed in the
diet of the poor (here proxied by the second quintile) and the prices that they face were
Figure 2 maintained in constructing the poverty line.
Distribution of Population between The share of non-food expenditure was obtained by fitting Engel’s curves of the food
Poor and Non - Poor Categories, 2004-5 share to total expenditure. The food poverty line was augmented to yield two possible
poverty lines. The ‘lower’ poverty line adds to the food poverty line the estimated non-
food share of those individuals whose total expenditures are equal to the food poverty
80 line. The ‘upper’ poverty line adds the estimated non-food share of those individuals
70 whose food expenditures are equal to the food poverty line.
60
50 For extreme poverty, the poverty gap index (P1 index)—which measures the gap
between the average income of poor individuals and the poverty line—is 1.5 per
40
cent in 2004-05. The poverty severity index (P2 index), which measures inequality
30 among the extremely poor, is only 0.43 per cent. These are relatively low values by
20
middle-income country standards.
10 However, when considering overall poverty, the P1 index rises to 8.1 per cent, im-
0 plying that many of the poor are clustered far below the upper poverty line. Con-
sumption is also relatively unequal among the entire poor population since the
Poor
Extremely Poor
Better Off
P2 index is 3.3 percent. This level is relatively high in comparison to that in other
Arab countries.
Two governorates, Mount Lebanon and the North, witnessed a relative decline in
Source: Authors’ estimates based on CAS, UNDP and their mean per capita expenditure (compared to the overall average) from 1997 to
MoSA Living Conditions and Household Budget 2004-5 (Figure 3). However, the decline was far more significant for the North (from
Survey (2004-5)
0.8 of the mean to 0.6). Consequently, the latter witnessed a major deterioration in
Figure 3
Per capita Nominal Expenditure (Relative to Mean Per Capita Expenditure) by Governorate
in 1997 and 2004-5
1.8
1997
1.6 2004/5
1.4
1.2
1
0.8
0.6
0.4
0.2
0
North
Bekka
Lebanon
South
Beirut
Mount
Note: The South and Nabatieh Governorates were merged under the South Governorate in this Figure for better
data comparability.
and Household Living Conditions Survey (1997).
its ranking by mean per capita expenditure (from the third highest in 1997 to the
lowest in 2004-5). The Beirut, South and Bekaa governorates recorded significant
improvements in their mean per capita expenditures relative to those in the other
three governorates.
National accounts data suggest that real per capita private consumption grew at
2.75 per cent annually after 1997. But projections in the full report indicate that the
distribution of this growth across governorates was very uneven. Beirut witnessed
the highest growth rate in per capita consumption (five per cent annually). This
is not surprising because of the large investment and widespread job creation
that took place in the city after 1997. In addition, the growth rates in consumption
expenditures for the Nabatieh, Bekaa and South governorates were higher-than-
average (approximately four per cent). However, the opposite was the case for the
North and Mount Lebanon. The North witnessed insignificant growth in expendi-
ture (only 0.14 per cent).
Economic and financial developments since 2003 have been shaped by major
changes in the political landscape. GDP growth has stagnated since 2004. In 2005,
its annual rate fell to one per cent. According to Government reports, the July War
might have provoked an 11 percentage point fall in GDP growth in 2006, namely,
from a projected six per cent growth rate to a negative five per centii . Notwith-
standing the outcome of the Paris III Conference, national authorities expect 2007
also to be a very difficult year. The projected rebound of GDP growth in 2007 has
been lowered from four to one per cent.iii These changes have no doubt affected
poverty rates in the country.
The lack of comparability between the 1997 and 2004-5 household surveys does
not allow us to estimate precise changes in household consumption. However,
the trends identified in Figure 4 and the order of magnitude of changes in poverty
can be supported by macroeconomic evidence. Extreme headcount poverty is
estimated to have declined from 10 per cent in 1997 to eight per cent in 2004-5
due to the growth in real per capita consumption described above. But extreme
poverty is conservatively estimated to have increased by nearly five per cent ii
Government’s Paris III document.
since 2004, mainly due to the contractionary effect of the July 2006 War on per
capita household consumption, which is assumed to have declined in line with the ii
Use of Fund Resources for Emergency Post-Conflict
country’s sluggish growth performance. Assistance, IMF (2007).
Financing Requirements for Poverty Reduction

Figure 4 The report applies a simple macro-model to calculate the gross investment re-
Projected Evolution of Extreme Poverty
in Lebanon (1997-2007) quirements for halving extreme poverty by 2015, taking into account three in-
come distribution scenarios,iv population growth and the rate of depreciation of
capital. This investment requirement is compared with the country’s projected
12 saving rate, which is assumed to follow its historical pattern. The difference be-
tween the two gives a shortfall, which must be filled by external development
10
assistance or by borrowing (Table 2).
8
Table 2
6 The Estimated Investment and Resource Gap Required to Halve Extreme
Poverty by 2015 under Three Different Growth Scenarios (% of GDP)
4
Anti-poor Growth Distribution-neutral Growth Pro-poor Growth
2 Investment Resource Gap Investment Resource Gap Investment Resource Gap
2005 21.5 8.5 17.2 4.2 15.4 2.4
0 2010 20.3 7.3 16.4 3.4 14.8 1.8
% 19.2 6.2 15.6 2.6 14.1 1.1
2007
2004-5
2015
1997
Average 20.3 7.3 16.4 3.4 14.8 1.8

Source: Authors’ estimates based on CAS, UNDP and MoSA Living Conditions and Household Budget Survey (2004-5) and
the national accounts data for 1997-2004 provided by the National Accounts Team within the Prime Minister’s Office.
Notes: Models and assumptions are explained in
detail in the main report. The principal assumption
for backward projection to 1997 is that the size of the
Lebanese population remained constant over the The financing gap per capita required to achieve investment and growth that
period from 1997 to 2004-5. For 2007, the main
assumption is that any shock to per capita private would lead to the halving of the percentage of the extremely poor would be sig-
consumption was of the same order of magnitude as nificantly greater if growth benefits the non-poor proportionally more than the
that forecast for GDP.
In both cases, the assumption is that income poor (i.e., it is ‘anti-poor’). When growth is pro-poor, only US$ 108 per capita are
distribution remained relatively constant. required annually, whereas this amount increases to US$ 213 and US$ 485 in the
Source: Authors’ estimates based on CAS, UNDP and
MoSA Living Conditions and Household Budget ‘distribution-neutral’ and ‘anti-poor’ growth scenarios, respectively. This implies
Survey (2004-5) and the national accounts data for that, ceteris paribus, since there are four million Lebanese, an additional US$ 1.5
1997-2004 provided by the National Accounts Team
within the Prime Minister’s Office. billion would be required annually to achieve the same rate of poverty reduction
if growth were anti-poor instead of pro-poor.
The cost of compensating for or ‘filling’ the average poverty gap for extreme
poverty is low. The report estimates that it would cost only US$ 12 per Lebanese
resident per annum to lift all poor individuals out of extreme poverty. Filling the
average poverty gap for all households under the upper poverty line would,
however, be significantly more costly, at US$ 116 per Lebanese resident per
annum.
The degree of fiscal space available to finance the investment needed to achieve
the MDG target of halving extreme poverty by 2015 is a major cause for concern.
This issue is particularly relevant in the aftermath of the significant economic im-
pact of the July War, followed by the current political impasse.
These factors are likely to constrain Lebanon well beyond 2006 because of the
time needed for the economy to recover from these setbacks. However, at US$
12 per capita, the annual cost of eradicating extreme poverty in Lebanon is rela-
iv
tively modest, representing only a fraction of the country’s annual external debt
Following Kakwani and Son (2006), the methodology
used here takes account of changes in the growth obligations.
elasticity of poverty over time for the head-count
ratio. Economic growth may be called pro-poor (anti- Regional Disparities
poor), if it is accompanied by a decrease (increase) in
inequality. Growth may be called distribution-neutral The distribution of extreme and overall poverty rates across governorates in
if there is no change in inequality. Here we use a simple 2004-5 is depicted in Table 3 and Figure 5. The main findings can be summarized
growth model that assumes that the output-capital as follows:
ratio is constant. For Lebanon the ratio was estimated
to be 1/4. We assume that the growth rate of capital • A very low prevalence of extreme poverty (below one per cent) and overall
per person depends positively on gross investment as a poverty (below six per cent) in Beirut;
share of GDP (denoted as i) and negatively on the rate
of population growth (n) and the rate of depreciation
• A low prevalence of extreme poverty (2-4 per cent) and a below-average
of capital stock (d), which is assumed to be 1.5 per cent. prevalence of overall poverty (close to 20 per cent) in Nabatieh and Mount
The full equation is as follows: i = 4(g + n +d). Lebanon;
• (10-12
A higher-than-average prevalence of extreme poverty in Bekaa and the South
per cent), an average prevalence of overall poverty in Bekaa (29 per cent)
and a higher- than-average prevalence of overall poverty in the South (42 per
cent).
• A very high prevalence of extreme and overall poverty in the North (18 per cent
and 53 per cent, respectively).
• Although per capita consumption in Nabateih is very close to the national average,
it is more equally distributed than in other regions so that the governorate’s
poverty rate, i.e., 19 per cent, is far below the national average.
• Ranking of governorates remains unchanged when P0 is compared to the
other two poverty measures (P1 and P2). Thus, not only do poor households
in the North governorate represent large proportions of their population, but
also their expenditure levels, on average, are far below the poverty line. Thus
their per capita poverty deficit is 2.4 times higher than the average across all
of Lebanon (Table 3). Moreover, the share of the North governorate in overall
poverty increases when distribution-sensitive measures are used, reflecting the
low standards of living of the poor in this region.
Table 3
Poverty Measures by Governorate, 2004-5
Extremely Poor Entire Poor Population

Governorate P0 P1 P2 P0 P1 P2
Beirut 0.67 0.07 0.01 5.85 0.95 0.24
Nabatieh 2.18 0.21 0.05 19.19 3.97 1.26
Mount Lebanon 3.79 0.69 0.21 19.56 4.45 1.52
Bekaa 10.81 1.89 0.53 29.36 8.05 3.06
South 11.64 2.00 0.53 42.21 11.35 4.22
North 17.75 3.65 1.08 52.57 18.54 8.63
Total 7.97 1.50 0.43 28.55 8.15 3.32
Source: Authors’ estimates based on CAS, UNDP and MoSA Living Conditions and Household Budget Survey (2004-5).
Figure 5
Extreme Poverty (P0-Lower Line) and Overall Poverty (P0-Upper Line) by Governorate
in 2004-5
20 P0-Lower
60
18
P0-Upper 50
16
14 40
12
10 30
8
6 20
P0-Upper
P0-Lower
4 10
2
0 0
National Average
Mount Lebanon
Nabatieh
Beirut
South
Bekaa
North
Source: Authors’ estimates based on CAS, UNDP and MoSA Living Conditions and Household Budget Survey (2004-5).
Note that P0-lower is measured on the left axis and P0-Upper is read on the right axis.
The North has 20.7 per cent of Lebanon’s population but 46 per cent of the
extremely poor population and 38 per cent of the entire poor population. The
extremely poor households are also over-represented in the South and Bekaa
governorates compared to their population shares, whereas the ‘moderately’
Figure 6 poor households (those whose consumption lies between the upper and lower
Overall Headcount Poverty Rates (%) by poverty lines) are over-represented in the South (Table 4).
Strata, 2004-5
Table 4
70 Distribution of Poverty Groups (%) across Governorates 2004-5
Governorate Extremely Poor Moderately Poor Entire Poor Proportion of

(1) (2) Population (1+2) Total Population
60
Beirut 0.9 2.6 2.1 10.4
Mount Lebanon 18.9 30.5 27.3 39.9
North 46.0 34.9 38.0 20.7
50 Bekaa 17.2 11.4 13.0 12.7
South 15.4 15.6 15.6 10.5
Nabatieh 1.6 4.9 4.0 5.9
Total 100 100 100 100
40 Source: Authors’ estimates based on CAS, UNDP and MoSA Living Conditions and Household Budget Survey (2004-5).
Figure 6 presents the overall headcount poverty within each governorate, i.e., at
30 the level of strata. However, results presented here should to be interpreted with
caution since the Living Conditions and Household Budget Survey was not de-
signed to capture poverty rates at the ‘strata’ level.v Thus, the following findings
20 serve primarily to enrich the analysis by indicating the order of magnitude of in-
ter-governorate differences rather than aiming to provide an accurate measure of
the poverty rates at the strata level per se:
10
• There are significant differences in poverty within the North governorate: Trip-
oli City and the Akkar/Minieh-Dennieh strata have the highest percentages of
overall poverty (Figure 6). In contrast, the ‘Koura/Zgharta/Batroun/Bsharre’ stra-
0 ta (which is also located in the North governorate) has a relatively low poverty
rate (i.e., an overall poverty rate of 24.7 per cent (Figure 6); its extreme poverty
Tripoly City
Shouf/Aley
Nabatieh
West Bekaa/Rashayya
All Lebanon
B.Jbeil/Marjayoun/Hasbayya
Baabda
Zahle
Keserwan/Jbeil
Maten
Beirut City
Akkar/Minieh-Dennieh
Jezzine/Saida
Sour
Hermel/Baalbek
Koura/Zgharta/Batroun/Bsharre
rate, not shown in the Figure, is 4.5 per cent).
• The bulk of poverty across the whole country is concentrated in four strata: Trip-
oli City, Akkar/Minieh-Dennieh, Jezzine/Saida and Hermel/Baalbek are home to
two thirds of the extremely poor and half of the entire poor population despite
the fact they make up less than one third of the Lebanese population.
Source: Authors’ estimates based on CAS, UNDP and Figure 7 plots strata-level overall headcount poverty against the Unsatisfied Basic
MoSA Living Conditions and Household Budget Needs (UBN) index, a composite index that measures deprivation in living condi-
Survey (2004-5)
tions and is also derived from the Living Conditions and Household Budget Sur-
vey. vi Thus, it is easy to identify regions where human deprivation is more acute
than income-based headcount poverty and vice versa. The scatter diagram plots
measures at both strata and governorate levels (the former are depicted by dia-
monds while the latter are depicted by circles in the Figure).
The figure is split into four quadrants separated by the overall average UBN score
and the overall headcount poverty rate for the country. Thus, areas located in the
v
A strata is a lower level of government than a upper right quadrant are in the worst position, with both a high headcount pov-
governorate but higher than a district. Each Lebanese erty rate and a high UBN score. Conversely, the lower left quadrant represents the
governorate (with the exception of Beirut) is typicall
composed of 203 strata. best position, with low scores on both the UBN and income poverty. The figure
highlights the following two major conclusions:
vi
The UBN methodology gives each household 11
scores, corresponding to 11 individual indicators. The
household also obtains four scores corresponding to • the
First, the level of deprivation in living standards is generally commensurate to
four indices. Finally, it obtains one composite score level of income-based headcount poverty (as indicated by the slope of the
for the living conditions index, which is then used to regression line and the intersection of the national averages for the UBN and
classify households into categories depending on the headcount poverty at approximately the same values).
degree of satisfaction of basic needs. The UBN index
here includes the households that are at both a ‘very • Second, the correlation between both indicators becomes very significant once
low’ and a ‘low’ level of satisfaction. the Nabatieh governorate and its strata are excluded (the R-square jumps from
0.4 to 0.8). The particularly low rate of income poverty observed for Nabatieh
could be explained by a number of factors, including the relatively low level of
inequality and the high incidence of external migration and remittances. How-
ever, this latter hypothesis remains to be validated by further social research.
Figure 7
UBN and Overall Headcount Poverty (% under upper poverty line) in 2004-5
UBN (%) National Average

70 High UBN and Low P0 High UBN and High P0
Bent Jbeil/M arjaayoun/Hasbayya Akkar/M inieh-Dennieh

60
2
R = 0.42
50 Nabatieh
Jezzine/Saida
S outh
Sour North
40 Hermel/Baalbek
Nabatieh City
Shouf/Aley Bekaa Tripoly City
30 Baabda West Bekaa/Rashayya National Average
Koura/Zgharta/Batroun/Bsharre
Zahle
20 Mount Lebanon
Keserwan/Jbeil
Beirut City
10
M aten
Low UBN and Low P0 Low UBN and High P0 P0 (%)
0
0 10 20 30 40 50 60 70
Governorates differ not only in their levels of per capita consumption, inequality
measures and poverty measures, but also in how much any given growth rate or
inequality reduction could reduce poverty levels. The North governorate has the
least elasticity with respect to mean consumption for both the headcount rate and
the poverty gap. This implies that the impact of growth in expenditure would be
smaller compared to such effects in other governorates, even with the same rates
of growth. For example, for extreme poverty, the headcount ratio would decrease
by only 2.4 per cent for every one per cent increase in income in the North.
But poverty would be responsive to reductions in inequality in the North. For a

one per cent reduction in inequality, as measured by the Gini Index, there would
be a 16 per cent reduction in poverty. But inequality is also a problem in other
governorates. For a similar drop in inequality in Beirut, for example, there would
be a 28 per cent reduction in poverty.
Poverty Correlates
Unemployment rates in Lebanon are high among the poor. In addition, the majority
of the employed poor are unskilled workers. Gender also affects unemployment
rates, especially among women in poor households. One quarter of the women
in poor households are unemployed, with slightly higher unemployment rates
in the South and Mount Lebanon governorates (where about one third of poor
women are unemployed).
Youth unemployment is aggravated by poverty; it is a factor that reproduces

poverty but it is also a manifestation of it. Half of extremely poor educated youth
(i.e., aged 15-24 years and holding a secondary degree) are unemployed and one
third of extremely poor university graduates are unemployed. This contrasts
with the situation that only one out of five non-poor university graduates are
unemployed. The unemployment rate for non-poor persons holding a secondary
degree is half the rate for the extremely poor.
Thus, it seems that even if a poor person were able to break from the vicious cycle
of lack of education and poverty, he could not easily gain access to job opportuni-
ties commensurate with his higher educational level.
Households affected by a combination of adverse factors face the highest risk of

poverty. For example, a person’s location of residence can interact with his la-
bour-market profile to produce different welfare outcomes across individuals.
The salaried employment category predominates over other employment

categories for the non-poor group (accounting for 53.7 percent of all the non-
poor in Lebanon). But employees paid on a weekly, hourly or piece-rate basis are
the categories most commonly occupied by the poor: such employees constitute
more than one third of the working poor. Another third of the working poor are
self-employed.
The category of non-salaried employees has the highest risk of poverty, with one
out of six workers in this category being poor. This is true for all governorates, par-
ticularly in Bekaa and the North. The poverty rate among non-salaried employees
is as high as 31 percent in Bekaa and 21 per cent in the North.
When workers are classified by economic sector, agriculture and construction ex-
hibits the largest shares of extremely poor workers. Figure 8 confirms this result
by showing poverty rates by economic activity of household heads. Extremely
poor workers are over-represented in agricultural activities by more than 12 per-
centage points and over-represented in construction by about nine percentage
points. In the North governorate, one out of four workers in agriculture and one
out of five in construction are likely to be poor.
Figure 8
Extreme Poverty Rates by Economic Activity of the Head of Household (2004-5)
25
20
15
10
0
%
Other Services
Transportations
Agriculture
Construction
Trade
Manufacturing
Total
Source: Authors estimates based on CAS, UNDP and MoSA Living Conditions and Household Budget Survey (2004-5)
Households headed by individuals who have less than elementary education con-
stitute 45 per cent of all the poor (Figure 9). This suggests that poor households
can be partly identified by the education level of the head of the household.
Another implication is that programmes to improve educational institutions—
particularly those providing technical training and helping to retain children in
school—represent social investment programmes with potentially very high
long-run returns.
Moreover, the more developed a region, the stronger the impact of lack of education
on living standards. Beirut is the typical case, where the illiteracy rate of the poor
is the highest (38 percent). In contrast, the North governorate exhibits a weaker
correlation between lack of educational attainment and poverty since agricultural
activities, which show generally low returns to labour, are more dominant there.
Figure 9
Extreme Poverty Rates by Educational Status of the Head of Household (2004-5)
25
20
15
10
0
Read and Write
Illiterate
Intermediate
University
Pre-school
Elementary
Secondary
Poverty correlates closely with school participation. There is a lower likelihood of

school enrolment, attendance and retention for poor children; and the gaps be-
tween poor and non-poor in enrollment rates widen from elementary to interme-
diate to secondary education. Only one poor child out of two is enrolled in interme-
diate schools and only one poor child out of four is enrolled in secondary schools.
The corresponding ratios for the non-poor are three out of four for intermediate
schools and one out of two for secondary education. The poor children in the North
governorate are the most disadvantaged: only one third of them aged 12-14 years
are enrolled in intermediate schools. The persistence of inequities in educational
attainment at the intermediate and higher levels highlights the need for more ef-
fective public intervention to improve educational outcomes for poor students.
Widowed heads of households with children are more likely to be poor. House-
holds headed by widows with more than three children are highly over-repre-
sented among the poor; their share among the poor is five times their population
share. Households headed by widows with one to three children are also over-rep-
resented among the poor, i.e., by five percentage points higher than the average.
Thus, welfare levels differ significantly among households when the gender of
the household head is combined with marital status and the number of children.
One conclusion is that targeting female widowed heads of households with more
than three children should be a priority.
This study used multivariate analysis to assess, ceteris paribus, the impact of
changes in poverty determinants on the probability of individual household
members being poor. There are three main results. First, changes in family size af-
fect poverty. A newborn child significantly increases the risk of a household being
in poverty (the elasticity of total household consumption with respect to house-

hold members is -0.5). Second, keeping household size and other characteristics
constant, households with larger numbers of self-employed members, non-sala-
ried members or members engaged in trade-related activities are more likely to
be poor. Conversely, households having members who are employers or salaried
workers have a one-third lower likelihood of being poor.
Third, poverty is affected by a household’s place of residence. Households in the

North are four times more likely to be poor compared to households (with a simi-
lar set of characteristics) that reside in Beirut. The latter factor suggests the pres-
ence of significant regional effects (differences in economic returns), which deter-
mine, to a large extent, differences in poverty rates across regions.
Elements of Poverty Reduction Strategy

Lebanon is fully capable of meeting the MDG target of halving the proportion of
people living in extreme poverty by 2015. It can also make substantial progress in
reducing inter-regional and intra-regional disparities in poverty.
Given the complex picture of poverty in Lebanon, a national poverty reduction

programme would have to be both comprehensive and flexible. It would have to
address the needs of both the 28 per cent of the population who cannot satisfy
their basic needs and the eight per cent who cannot even meet their basic food
requirements (i.e., the extremely poor).
An advantageous starting-point for Lebanon is that extreme poverty is relative-

ly shallow. The cost of eliminating the average poverty gap for extremely poor
households is low: it would cost only US$ 12 per resident Lebanese per annum to
lift all poor individuals out of extreme poverty. However, the average poverty gap
for all households under the upper poverty line is estimated to be US$ 116 per
resident Lebanese per annum.
In addressing poverty, the country’s strategy would also have to put a priority on
addressing inter-regional and intra-regional disparities, which hamper opportu-
nities for generating growth in incomes in certain governorates and strata. Finally,
in order to enable poor households to take advantage of economic opportunities,
Lebanon’s poverty-reduction programme would have to focus efforts on build-
ing up the human capital of the working-age population. This would enable the
working members of poor households to secure more productive employment.
This Country Study attempts to sketch out only the major pillars of a poverty-re-
duction strategy for Lebanon. Further analysis and discussion will be needed to
elaborate the specific programmes and policies within each of the pillars. Follow-
ing are what we propose as the five major pillars:
1. Inclusive and Sustained Growth: This emphasis involves implementing an
economic agenda that can both lay the basis for more sustainable growth
in jobs, productivity and incomes and direct greater benefits to poor house-
holds. Attaining such an objective would require identifying the policies
that can expand public investment and encourage greater private invest-
ment as a means to stimulate growth. Critically, it would also imply identify-
ing the necessary sources of financing for carrying out public investment or
providing more incentives for private investment.
2. Expanding Educational Opportunities: Concerted efforts should be

undertaken to ensure that the poor, both women and men, enroll in and
stay in schools. This is essential for enabling them to have better access to
social and economic opportunities in the future. This is also essential for
raising labour productivity and stimulating higher rates of economic growth
in Lebanon.
3. Promoting More Balanced Regional Development: The poverty profile

developed by this study indicates that greater efforts need to be directed
to reversing growing regional disparities in incomes, opportunities and
services. Some regions, such as the North, are clearly lagging behind in
development and thus have large pockets of poverty.
4. Focusing Resources on Poor Households: The existence of sizeable, but

manageable, differences in living standards across strata within governor-
ates in Lebanon implies that geographic-based targeting policies could play
an important role in poverty reduction. What we describe as ‘narrow geo-
graphic-based targeting’ (namely, at the level of the strata) is more likely
to be effective in reducing both under-coverage and leakage errors. More-
over, policymakers could reduce leakages of benefits to the non-poor from
poverty-reduction programmes by eliminating benefits to people whose
incomes are known to be high, such as employers (i.e., the self-employed
who employ others) or by using a Proxy Means Test to identify eligible per-
sons. Broad targeting methods could also be used to direct more benefits to
agricultural and construction workers, most of whom tend to be casual and
unskilled workers. These two occupations represent 38 per cent of all the
poor. In Section 5, below, we elaborate on such targeting issues.
5. Monitoring Outcomes: In order for any poverty-reduction programme to

be successful, an effort should be undertaken to improve the quality and
frequency of data collection and the monitoring of outcomes, especially at
the regional and subregional level. It is important to be able to continuously
update information and adapt the strategy according to changing econom-
ic and social conditions in Lebanon. A major recommendation in this regard
is that the next household budget survey be designed to more accurately
capture household living conditions and expenditures at the strata level.
Targeting Strategy
For this Country Study, we concentrate our attention on the general policy issue
of targeting public expenditures to poor households. Other policies that will be
critical to the success of a poverty-reduction strategy for Lebanon, such as foster-
ing growth and providing greater access to educational opportunities, will have
to be elaborated in ensuing studies and reports.
If interventions to reduce poverty are to be effective as well as financially feasible,

they must be based on proven mechanisms for targeting resources and assistance
to poor households. Although the explicit goal of many types of interventions is
to reduce poverty, they are likely to benefit some non-poor as well. Since funding
for such programmes is usually limited, steps must be taken to target available
benefits as effectively as possible toward those who need them most.
Direct targeting is based on clearly identifying poor households or individuals

(i.e., identifying that their income is below the poverty line). If providing assis-
tance directly to the poor is not feasible, intervening on the basis of their charac-
teristics might be required. We refer to this approach as ‘characteristic targeting’.
For instance, if the poor are concentrated in certain regions or districts, the provi-
sion of public services to those areas could be increased.
However, characteristic targeting has two potential drawbacks. First, some non-
poor households could possess the same characteristics as the poor and, hence,
receive benefits (we call this ‘leakage’). Second, not all poor households might
possess the characteristics necessary to benefit from the intervention, and conse-
quently might not be reached (we call this ‘under-coverage’). The success of char-
acteristic targeting depends on the ability of programme designers to minimise
these problems.
Two Approaches to Targeting: Broad and Narrow

Targeting poverty-reduction programmes to a subgroup of the population has
an intuitive appeal for policymakers, but it also poses considerable difficulties. Di-
rect targeting explicitly identifies individual households as poor or non-poor and
directly provides benefits to the former group and tries to withhold them from
the latter. The specific form of such targeting depends on the ability of govern-
ments to identify the poor.
If beneficiaries can be identified on a household or individual level, transfer pay-

ments or some other forms of direct assistance could be mobilized to reduce their
vulnerability. For example, the provision of food or medical care to elderly and
disabled individuals, to households that display clear signs of malnutrition or to
individuals who have special needs, such as pregnant and lactating women, are
all forms of the direct targeting of assistance. However, a serious problem affect-
ing direct targeting is that the methodology, or ‘screen’, needed to identify the
poor, such as their level of income, can be expensive to implement.
In practice, there are two alternatives to direct targeting of the poor based on in-
come measures. The first involves targeting types of spending and can be called
‘broad targeting’. Under this approach no attempt is made to reach the poor di-
rectly as individuals. Instead, programmes hope to achieve gains by targeting
types of spending that are relatively more important to the poor. Spending on
basic social services, such as primary education and primary health care, is one
example. Directing resources to rural development, because poverty is often con-
centrated in rural areas, is another.
The second approach entails targeting categories of people. Under this approach,
which can be called ‘narrow targeting’, benefits are directed to certain types of
people. Examples are food stamp schemes targeted to mothers in food-insecure
communities or innovative micro-credit schemes aimed at rural landless women.
In Lebanon households with a head who has less than an elementary education
constitute 45 per cent of all the poor. So targeting by the educational level of the
household head could be effective. Also, while targeting female-headed house-
holds in general might not make sense, directing resources to households headed
by female widows with three or more children would be much more efficient.
Types of Narrow Targeting

Narrowly targeted schemes are based on one of two principles—or a combination
of both. The first is indicator targeting (also called categorical targeting). Such an
approach identifies a characteristic of poor people (an indicator) that is highly
correlated with low income but can be observed more easily and more cheaply
than income. The indicator is then used as a proxy for income to identify and tar-
get poor people. A typical example would be a region of residence identified as
particularly poor. Alternatively, such indicators as landholding class, gender, nutri-
tional status, disability or household size could be used to identify beneficiaries.
In Lebanon households living in the North governorate account for 46 per cent of
the extremely poor and 36 per cent of the poor. So channeling a disproportionate
share of public resources to the North would make sense for a national poverty-
reduction programme. However, narrower geographical targeting, such as at the
level of strata, would be more efficient.
For example, some strata in the North, such as Tripoli city and Akkar/Minieh-den-
nieh, have the highest incidences of both extreme and overall poverty. While the
Akkar/Minieh-dennieh strata accounts for 10 per cent of the governorate’s popu-
lation, for instance, it is home to 25 per cent of its poor. Together, the strata of
Tripoli City, Akkar/Minieh-dennieh, Jezzine/Saida and Hermel/Baalbek account
for two thirds of the poor throughout all of Lebanon.
The second approach to narrow targeting is self-targeting. Instead of relying on

an administrator to choose participants, such an approach seeks to have benefi-
ciaries select themselves through creating incentives that would induce the poor
and only the poor to participate in a programme.
For example, public employment schemes use work requirements to help screen
out the non-poor while subsidy programmes support items that the poor con-
sume but the rich do not. In Lebanon, public employment schemes could be de-
signed, for instance, to provide temporary jobs to poor agricultural and construc-
tion workers, who are over-represented among the poor. Other screening devices
rely on waiting time, stigma and lower-quality ‘packaging’ of goods and services
to dissuade usage by the non-poor.
Both types of narrow targeting offer the hope of avoiding two commonly identi-
fied errors of targeting: 1) a leakage of benefits to the non-poor, which is mea-
sured by the ratio of non-poor beneficiaries to total beneficiaries; and 2) under-
coverage of the poor, which is measured by the ratio of poor beneficiaries to the
total poor population.
One drawback of indicator targeting is that not all of the poor can be identified by
the same indicators. For example, even though most countries have regions that
are poorer than others, not all of the poor live there, nor do all the rich live else-
where. Hence, geographic targeting can often benefit some of the rich and can
bypass—and perhaps even tax—some of the poor who live in the better-off areas
(Datt and Ravallion 1993; Ravallion 1995).
Narrow geographical targeting at the level of the village or the urban commu-
nity could reduce the leakage of benefits to the non-poor in countries or regions
where, because of common agro-climatic or socioeconomic conditions, the
standard of living in the majority of the households in most villages and urban
communities is similar. The households in these villages could often have similar
sources of income, and could be affected by the same conditions, such as road
conditions, the distance to the nearest town, and the availability of public facilities
for health, education and water supply.
Common methods of assessment can obscure some of the potential benefits of

narrow targeting. Assessments of the benefits from geographical targeting pro-
vide an example. Several studies have examined the potential impact on pover-
ty of allocating a predetermined budget optimally across regions. But the static
gains of such an allocation are often found to be modest, reflecting, in essence,
that the poor are heterogeneous.
Recent work, which allows for gauging the potential dynamic effects of pro-
grammes, suggests, however, that static assessments can greatly underestimate
the long-term benefits. Gains could percolate through and strengthen over time
as a result of the positive external effects of development in poor regions on the
productivity of the private investments by poor households.
Measuring such effects is difficult, however: it requires data that are often unavail-
able. In a study assessing the effects over time of development programmes that
were geographically targeted to poor areas in China, Jalan and Ravallion (1998)
found the expected imperfect coverage of the poor and leakages to the non-
poor. But they also found that the programmes had a positive impact on growth
rates in the targeted areas. In this case, the long-term gains to the poor were high-
er than the short-term gains.
A thorough examination of Lebanese data for the purpose of constructing a com-

prehensive set of policies to reduce poverty is beyond the scope of this study.
However, the poverty profile for Lebanon provides a rich description of the char-
acteristics of the poor. These features could be used to identify the most efficient
mechanisms for channelling resources to poor households, beginning with tar-
geting, for example, the poorest strata in the country.
However, macroeconomic policies—fiscal policies in particular—will have to be

revised in order to mobilize the resources necessary to finance increases in public
expenditures on social safety nets and public investment in social services. And
in addition to implementing such social policies, national policymakers will have
to identify economic policies that can stimulate a broad-based, inclusive pattern
of economic growth, which can raise the standard of living of poor households in
the regions and economic sectors in which they are located.
Introduction 29
Introduction
This report is the first attempt to draw a profile of poverty in Lebanon based on
money-metric poverty measurements of household expenditures. The report pro-
vides a comprehensive overview of the characteristics of the poor and estimates
the extent of poverty and the degree of inequality in the country. It concludes
that nearly 28 per cent of the Lebanese population can be considered poor and
eight per cent can be considered extremely poor. However, the most important
finding of the report is that regional disparities are striking. For example, whereas
poverty is relatively insignificant in the capital city, Beirut, it approaches LDC aver-
ages in the Northern city of Akkar. The principal conclusion is that the North gov-
ernorate has been lagging behind the rest of the country.
There are four other major results that have notable implications for poverty-
reduction programmes in Lebanon: First, the projected cost of halving extreme
poverty is very modest, namely, a mere fraction of the cost of the country’s large
external debt obligations. However, such a cost would rise dramatically if inequal-
ity were to worsen (i.e., if future growth were anti-poor). Also, the cost of reducing
overall poverty is far more considerable due to the fact that almost one fifth of
the Lebanese population is clustered between the lower and upper poverty lines.
Second, education is highly correlated with poverty in Lebanon. Almost 15 per
cent of the poor population was illiterate, compared to only 7.5 per cent among
the non-poor group. Third, unemployment rate of non-poor educated persons is
half the rate of the poor. It seems that even if a poor person was able to break the
vicious circle of education and poverty, and completed his/her education, he/she
cannot access job market opportunities as easily as a non-poor individual. Fourth,
the poor are heavily concentrated among the unemployed and among unskilled
workers, with the latter concentrated in sectors such as agriculture and construc-
tion. This places a priority on a broad-based, inclusive pattern of economic growth
that could stimulate employment in such sectors.
Based on such findings, the report concentrates on providing general policy rec-
ommendations on issues related to directing public expenditures to poor house-
holds. One of its major recommendations is to concentrate on channelling re-
sources to poor regions below the governorate level, such as to four ‘strata’ where
two-thirds of the poor in Lebanon are concentrated. However, the report notes
that macroeconomic policies, particularly fiscal policies, will have to be rede-
signed to mobilize the resources necessary to finance the increases in public ex-
penditures on the social safety nets and public investment in social services that
would be part of a major poverty-reduction programme.
The report is structured as follows:
Chapter One briefly reviews the underlying conceptual framework and method-
ology for poverty measurements applied in this report.
Chapter Two gives the main results for poverty, growth, and distribution. First,
the chapter presents expenditure and consumption aggregates which are the
basis for all empirical analysis in this report and the distribution of this expen-
diture across and within regions and sub-regions. Poverty changes and the cost
of poverty reduction are then extrapolated over the period from 1997-2007 and
2005-2015, respectively using simple backward and forward forecasting tech-
niques. However, the degree of uncertainty associated with those projections
can be hardly over-emphasised. The use of poverty elasticities vis-à-vis economic
growth and ICORs is a crude approximation because we acknowledge that such
elasticities change across time and space. Estimates provided here should not be
looked upon as watertight precise figures. Rather these figures are only indica-
tive of the order of magnitude of changes in poverty and the financing required
for poverty reduction and should therefore be used primarily for awareness and
advocacy purposes. For the purposes of poverty monitoring and pro-poor plan-
ning a follow up MPS and a more detailed and sectoral-based MDG costing are
required. The chapter documents the large inter-regional differences in expendi-
ture and socio-economic conditions, but also points out that most of the inequal-
ity is within regions. The chapter ends by making a comparison between money
metric poverty rates and employment and human poverty indicators derived
from the MPS data.
Chapter Three spells out a profile of poverty in order to capture the special fea-
tures of poverty that would help design targeted interventions. It examines the
specifics of the poverty profile in Lebanon along three dimensions: (i) who is at
risk of poverty; (ii) who are the poor; and (iii) causes for poverty. It also identifies
factors affecting poverty by means of multivariate analysis: One of the benefits
of such analysis is the ability to assess the impact of a change a particular factor
would have on the probability of an individual being poor, if all other factors were
kept constant. Thus, poverty effects of proposed policy interventions can be pre-
dicted to assess the impact of a change a particular factor would have on the
probability of an individual being poor, if all other factors are kept constant.
Chapter Four ends with a brief review of main conclusions and policy recommen-
dations for the design of a poverty reduction strategy.

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Poverty, Growth and Income Distribution in Lebanon

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Poverty, Growth and

Central Statistics Administration Team

United Nations Development Programme Team

Research Support and Editing

This report is the result of intensive collaboration between the Government of

The Government of Lebanon is committed to enhancing social development and

The report is expected to directly contribute to the reform processes launched

Nayla Mouawad Marta Reudas

Abbreviations and Acronyms

AFC Actual Final Consumption

42 Chapter Two: Poverty, Growth, Distribution and the

59 Chapter Three: Poverty Profile and Correlates

77 Chapter Four: Policy Considerations

Table A.3.15 Number of Children by Poverty Status and Place of Residence,

Table A.3.16.b Poverty Measures by Household Size and Place of Residence,

Main Results and Forecasts

a comprehensive overview of the characteristics of the poor and estimates the

One of its major recommendations is to concentrate on channeling resources

Expenditure Levels and Inequality

The distribution of expenditure among the population is relatively unequal. The

Within-governorate inequality accounts for most of the inequality in Lebanon.

Poverty and Growth: 1997-2007

BOX A : Determining Poverty Lines in Lebanon Based on Household Composition

Financing Requirements for Poverty Reduction

Average 20.3 7.3 16.4 3.4 14.8 1.8

Extremely Poor Entire Poor Population

Governorate Extremely Poor Moderately Poor Entire Poor Proportion of

rate, not shown in the Figure, is 4.5 per cent).

UBN (%) National Average

Bent Jbeil/M arjaayoun/Hasbayya Akkar/M inieh-Dennieh

But poverty would be responsive to reductions in inequality in the North. For a

Youth unemployment is aggravated by poverty; it is a factor that reproduces

Households affected by a combination of adverse factors face the highest risk of

The salaried employment category predominates over other employment

Poverty correlates closely with school participation. There is a lower likelihood of

in poverty (the elasticity of total household consumption with respect to house-

Third, poverty is affected by a household’s place of residence. Households in the

Elements of Poverty Reduction Strategy

Given the complex picture of poverty in Lebanon, a national poverty reduction

An advantageous starting-point for Lebanon is that extreme poverty is relative-

2. Expanding Educational Opportunities: Concerted efforts should be

3. Promoting More Balanced Regional Development: The poverty profile

4. Focusing Resources on Poor Households: The existence of sizeable, but

5. Monitoring Outcomes: In order for any poverty-reduction programme to

If interventions to reduce poverty are to be effective as well as financially feasible,

Direct targeting is based on clearly identifying poor households or individuals

Two Approaches to Targeting: Broad and Narrow

If beneficiaries can be identified on a household or individual level, transfer pay-

Types of Narrow Targeting

The second approach to narrow targeting is self-targeting. Instead of relying on

Common methods of assessment can obscure some of the potential benefits of

A thorough examination of Lebanese data for the purpose of constructing a com-

However, macroeconomic policies—fiscal policies in particular—will have to be

The report is structured as follows:

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