BEIRUT: A study by researchers at the International Monetary Fund does not expect Lebanon to tap its potential offshore gas wealth before 2020, and urges the authorities to apply a prudent fiscal policy before the actual drilling takes place.

“Lebanon is expected to become a commodity producer over the next decade, albeit presumably smaller than others,” the study said.

“Recent seismic surveys suggest that Lebanon’s gas resources could be in excess of 25 trillion cubic feet, not particularly large by international standards. Still, revenue could potentially increase significantly for many years to come, although starting from 2020 at the earliest,” the study added.

The authors of the report stressed that the study did not reflect the official position of the IMF.

The study focused on fiscal policy in light of the potential for large quantities of gas off Lebanon’s coast.

“Lebanon will need to reformulate its fiscal framework to take into account potential revenue from natural resources. If natural resources prove to be commercially viable and sizeable, Lebanon will become a commodity-producing country,” the study said.

The 25 trillion cubic feet of natural gas cited by the study does not necessarily represent the entire gas potential under the sea bed.

British-based survey firm Spectrum told The Daily Star in 2013 that based on a 3-D seismic survey conducted in an area of 3,000 square kilometers off the southern coast, Lebanon could have close to 25 trillion cubic feet of gas.

Former Energy and Water Minister Gebran Bassil claimed Lebanon’s gas wealth off the coast was much more than 25 trillion cubic feet.

The study said it was an absolute prerequisite for the design of a prospective framework to set a fiscal regime appropriately – as this is the first step to attract investors and ensure a sustainable and sound development of the resource sector.

“This step should be followed by setting macro-fiscal anchors and supporting institutions. From a macro-fiscal perspective, exhaustibility and price volatility of natural resources will gain special importance for fiscal policy formulation,” the paper said.

The study advised Lebanon against borrowing heavily in anticipation of a gas discovery as this would be counterproductive.

“An aggressive borrowing policy in anticipation of future resource revenues or excessive zeal to maintain government participation in all development projects could be counterproductive, given the uncertainty about the fiscal regime as well as the magnitude and temporal profile of the expected resource revenues,” the report argued.

“Even if these profiles of the revenues are in line with the assumptions behind the baseline or alternative scenario, the associated resource revenues are expected to be only moderate in size by international standards.”

The paper proposed the creation of a sovereign wealth fund if the country starts generating revenues from gas and oil explorations.

“Establishing a sovereign wealth fund could help enhance the institutional framework,” it said.

SWFs are special investment arrangements focused on holding and managing investments abroad. Their main purpose is achieving macro-fiscal stabilization as well as accumulating financial savings for intergenerational equity and fiscal sustainability; however, some SWFs also aim at financing development needs,” the paper said.

It added that the flows into and out of a SWF should be fully integrated within the overall budgetary framework to ensure its integrity and protect its role as the mechanism for setting expenditure priorities and allocating public resources.

“Depending on institutional capacity, SWFs can be structured either as separate funds – these require well-developed institutional capacity as a prerequisite – or as one fund with different portfolios. Deposit and withdrawal rules as well as investment policies should be defined based on the type of fund arrangement; and all the SWF operations should be properly recorded,” the study said.