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Is Lebanon Preordained to Become a “Presource” Curse Country?

Lebanon is on the uncertain road to making the first commercially viable discovery with
the Ministry of Energy and Water (MoEW)’s approval of exploration plans by the Italian
ENI International B.V., the French TOTAL S.A., and the Russian JSC NOVATEK consortium
for offshore blocks 4 & 9 in the first quarter of 2018. The approval of the exploration plans
comes 5 years after the launching of the first pre-qualification round in 2013, which was
accompanied by nationwide communication campaign launched by MoEW portraying
Lebanon’s rosy future as a result of the revenues to be generated by the nascent petroleum
sector. The heightened expectations led to hopes that the future revenues likely to be
generated by the sector will alleviate the impact of the public debt which is rapidly rising
above 150 percent of Gross Domestic Product (GDP)3, while Lebanon was recently granted aid
pledges exceeding USD 11 billion through CEDRE Conference.
However, experience has proven that new commercial discoveries tend to heighten
expectations, fueling public spending and risky borrowing. In fact, governments can fall in a
“presource curse” trap, which is defined as the underperformance of economic growth after
a commercial discovery and long before oil and/or gas is produced, as a result of skyrocketing
expectations and a correlated increase in public spending and/or borrowing.
This policy brief questions whether Lebanon is doomed to enter the club of “Presourcecursed”
countries. It also attempts to shed light on the main policy steps that could be
adopted by Lebanese policymakers to avoid it.

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