The report, published by Byblos Bank's Lebanon This Week, said the level of a country's vulnerability relates directly to its degree of dependence on foreign capital inflows to finance external imbalances and avert balance-of-payments crises.

Lebanon counts heavily on capital inflows and remittances from Lebanese expatriates to improve the balance of payments and shore up the economy.

The central bank estimates that more than $5.5 billion are sent to Lebanon each year, representing close to 25 percent of the country's gross domestic product (GDP).

The LVI is a non-weighted average of a country's ranking in five different variables considered to be meaningful indicators of sovereign external financing risk and that are relevant in emerging debt crises.

The five variables used are sovereign debt rollover needs as a share of GDP; gross external financing requirements as a share of current account receipts; gross external financing requirements minus foreign direct investment inflows as a share of usable official foreign exchange reserves; the share of a current account deficit financed through foreign direct investment; and the government's estimated contingent liability for a systemic banking crisis as a percentage of GDP.

Lebanon fell into the "vulnerable" category, along with Iceland, Romania, Latvia, Turkey and Kazakhstan. Iceland was the only country considered more vulnerable than Lebanon. Seven countries were ranked in the "somewhat vulnerable" category, 15 were in the "intermediate" category, five came in the "somewhat sheltered" group and seven were considered "sheltered."

The LVI was launched in September 2007 with 15 countries from the "Emerging Europe, the Middle East and Africa" region. Lebanon ranked as the seventh most vulnerable sovereign at the time, behind Lithuania and ahead of the Slovak Republic.

Six countries from the Middle East and Africa region were included in the index. Lebanon was the only country in the "vulnerable" category, followed by South Africa and Tunisia in the "somewhat vulnerable" category, Egypt and Morocco in the "intermediate" category, and Nigeria in the "sheltered" group. Also, Standard & Poor's said Lebanon, Kazakhstan, South Africa and Tunisia are the only non-European economies to be among the most vulnerable countries.

Last January, Standard & Poor's downgraded Lebanon's long-term sovereign foreign currency rating to "CCC+" from "B-" and maintained its "stable" outlook.

The agency attributed the downgrade to the increase in political instability that has raised tensions in the country and that could shake confidence in the financial sector. Lebanon's rating is now seven notches below investment grade, the lowest among the 40 countries included in the liquidity index. - Byblos Bank's Lebanon This Week