On September 26, Saudi Arabia announced it will cut ministers’ salaries by 20 percent and scale back financial perks for public sector employees due to declining oil prices.
The country’s budget deficit spiked to 13.5 percent according to the IMF which is leading Saudi Arabia to launch a bold reform plan to ease the Kingdom’s dependence on its oil sector and diversify its economy.
As Lebanon starts developing its oil and gas sector it is critical that it learns valuable lessons from the Saudi experience.
Plan early to deal with commodity price volatility
As Lebanese witness the extreme volatility of energy markets, this serves as a reminder of the painful repercussions on the economies and citizens of countries highly reliant on commodity exports. This is why proper planning of legal and fiscal frameworks will be crucial early on. For example, a stabilization fund must be set up to cushion the economy.
Do not rely on the petroleum industry: diversify your economy and save for future generations
This can also be an opportunity to persuade the Lebanese to diversify the economy away from the oil sector. Future oil revenues will have to be invested to develop other industries, and saved for future generations. This requires managing expectations early on and adopting a national attitude that disfavors oil dependency and instead focuses on the sustainable development of other industries.
Watching the negative impact of lower oil prices and bad planning on other countries is a unique opportunity for Lebanese as they prepare to tap into their natural resources. It will be critical for both Lebanese citizens and decision makers to consider these issues when they set the industry's building blocks.
We get this opportunity once. We’d better do it right!
Jamil Hijazi is a volunteer at LOGI. He is completing his Master in Oil and Gas Economics at the Centre for Energy, Petroleum, Mineral Law and Policy, Dundee University, Scotland.