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Lebanon's waters are believed to hold large hydrocarbon reserves, making offshore Lebanon an attractive location for oil and gas companies.While developing and monetizing these reserves will entail many geological and technical challenges, a key policy challenge that Lebanon will have to face is how to manage oil and gas revenues in a way which maximizes the economic benefits for its citizens. While Lebanon has managed to navigate through various shocks and safeguard its macroeconomic stability, many sources of economic and institutional vulnerability remain.No matter how large or small the resource earnings could be, the clear policy prescription for Lebanon would be to initially use these revenues to pay off its large public debt, beginning with the country's most risky liability, foreign currency external debt. Infrastructure constraints pose a serious barrier to enhancing Lebanon's competitiveness and thus devoting part of the revenues to scale-up public investment can have positive effects and induce an upward shift in economic growth or help the country escape poverty traps, or both.While Lebanon's hydrocarbon law requires the establishment of a sovereign wealth fund for future generations, there is no imperative to create such a fund in Lebanon.Lebanon should be wary of importing revenue management strategies from abroad, as optimal choices depend on each country's political, economic and institutional context.
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