Designing a Fiscal Framework for a Prospective Commodity Producer: Options for Lebanon

IMF Working Papers, October 23, 2014

Source details

Canonical URL: Designing a Fiscal Framework for a Prospective Commodity Producer: Options for Lebanon

Lebanon is expected to have gas resources in its Mediterranean basin that could turn the country into a natural gas producer over the next decade.
Lebanon’s economy and institutions will need to adapt to the challenges and opportunities arising from potential resource revenue.
Designing an appropriate fiscal regime is an absolute prerequisite to ensure:
- the government can receive a fair share of the resources, and
- investors face appropriate incentives to invest and develop the sector.
After setting a fiscal regime, the next steps are establishing macro-fiscal anchors and supporting institutions.
The prospective framework should initially be focused on:
- ensuring fiscal sustainability, and
- ensuring intergenerational equity,

given the estimated relatively short horizon of Lebanon’s gas resources.

Strong institutional arrangements need to underpin the prospective framework to ensure the pace of resource wealth’s use is set in line with Lebanon’s capacity constraints.

Fiscal regime design:
- Balance between government take and investor incentives is central.
- Choice of regime option should reflect rate of return, risk tolerance, and sector characteristics.
Macroeconomic and fiscal anchors:
- Establish anchors to manage volatility and protect fiscal sustainability.
- Anchors should be consistent with Lebanon’s broader fiscal stance and public financial management (PFM) capacity.
Intergenerational equity:
- Given the relatively short horizon of resources, policies should smooth consumption and investment across generations.
Institutional design:
- Strong fiscal governance and accountability mechanisms are needed.
- Considerations include government company structures, government share mechanisms, and resource revenue management frameworks.
Implementation sequencing:
- First: design a regime that secures fair government share and investor incentives.
- Then: set macro-fiscal anchors and create or strengthen institutions to implement the regime and manage resource flows prudently.

Subject: Expenditure, Fiscal governance, Fiscal policy, Fiscal stance, Public financial management (PFM)
Keywords: accountability, Fiscal governance, fiscal policy, Fiscal stance, Global, government company, government share, government take option, government wealth, Lebanese authorities, natural resource, oil-producing countries, rate of return, regime option, resource revenue, resource revenue management, risk tolerance, WP