Lebanon’s Sovereign Wealth Fund and the MENA Experience: A Path to Crisis Recovery

A year and a half after the passage of Lebanon’s Sovereign Wealth Fund (SWF) law in December 2023, the national context is undergoing significant transformation. With a new president in office, a government in place, and renewed regional and international interest in Lebanon’s offshore hydrocarbons, the prospects for advancing long-delayed economic and institutional reforms are cautiously re-emerging. Discussions on energy exploration, production agreements, and investment frameworks have resurfaced, signaling a potential reactivation of Lebanon’s overlooked institutional framework for resource management.

Revisiting the 2023 SWF law is now imperative, as the revival of hydrocarbon prospects and the formation of a new government renew the stakes for institutional reform and transparent resource governance. Enacted to manage prospective oil and gas revenues, the fund was intended to serve as both a fiscal stabilization tool and a structural reform mechanism aimed at restoring public trust, insulating resource wealth from political interference, and ensuring long-term intergenerational equity. But the law-passed in the absence of a comprehensive fiscal strategy and amid the ongoing failure to enact a formal capital control law-raises critical questions about its coherence and credibility. A sovereign wealth fund, while vital for future resource governance, cannot operate effectively in isolation. Without legal safeguards to manage capital flight and stabilize the financial system, the fund remains exposed to the very vulnerabilities it is meant to mitigate. Can Lebanon design an SWF that internalizes global best practices and regional lessons? Or will it become yet another shell institution, vulnerable to elite capture and institutional erosion? 

Across the Middle East and North Africa (MENA), sovereign wealth funds have played divergent roles. Some have helped stabilize economies and support long-term investment strategies, while others have reinforced unaccountable governance structures or failed entirely in the face of political instability. These contrasting models offer urgent lessons for Lebanon as it may be approaching its own hydrocarbons moment.

What Are Sovereign Wealth Funds?

Sovereign wealth funds are state-owned investment vehicles, typically funded by excess revenues from natural resources, fiscal surpluses, or foreign reserves. 

They serve three main purposes:

1. Stabilization-Cushioning national budgets against commodity shocks.
2. Savings-Preserving wealth for future generations.
3. Development-Investing in infrastructure and strategic assets.

Globally, SWFs are valued at over $11 trillion, with the MENA region accounting for a substantial share due to oil exports. What determines the success of a sovereign wealth fund is not its size, but the strength of its governance: robust legal frameworks, operational transparency, and protection from political capture are essential.

MENA Case Studies: Lessons from Regional Successes and Failures

Where Lebanon Stands: Law on Paper, Trust at Risk

Lebanon’s 2023 sovereign wealth fund (SWF) law represents a necessary starting point-but in its current form, it falls short of offering meaningful protection against future misuse. Critically, it lacks robust enforcement mechanisms: there are no clauses for audit failures, no operational independence from the Ministry of Finance or Banque du Liban, and no binding deadlines for public disclosure. Basic safeguards-such as automatic fund suspension if international audits are delayed beyond 12 months-are notably absent.

Compounding these structural weaknesses, the law was passed in a parliamentary session that once again postponed the capital controls bill—highlighting a reform sequence driven by political expediency rather than strategic coherence.

In the absence of a coherent reform sequence, the SWF is already vulnerable to multiple operational and governance risks, including:

• Elite Capture: Lebanon’s fiscal system has long been dominated by sectarian patronage and entrenched banking interests. Past efforts to reform oil governance were derailed when financial lobbies pushed for supervisory influence.

  • Mitigation: Enshrine merit-based selection for SWF board members and prohibit current financial sector representatives from holding oversight roles.

• Opacity: The central bank’s legacy of opaque financial engineering has shattered public confidence in institutional management.

  • Mitigation: Mandate real-time public disclosure of SWF transactions, including ethical exclusion lists and quarterly audit publication.

• Exchange Rate Volatility: To preserve fund value, the SWF’s asset base must be largely held in foreign currency-denominated instruments and managed independently from domestic liquidity pressures. Lebanon should also explore a parallel currency stability mechanism, such as a dedicated stabilization account, to reduce pressure on the fund during periods of market stress or speculative capital outflows.

Implementing a credible SWF structure will require not only unprecedented political will but also strategic pressure from international partners. Future IMF and World Bank packages should consider linking disbursements to enforceable SWF governance benchmarks. At the domestic level, civil society coalitions, reformist legislators, and technocratic actors must coordinate efforts to ensure the fund evolves into a genuine accountability mechanism-not another institutional façade.

What Lebanon Must Do Differently

With a parliamentary framework already enacted, Lebanon has a unique opportunity to mandate its sovereign wealth fund (SWF) role proactively-before hydrocarbon revenues begin to flow. Its success will hinge not on the scale of resource income but on the quality of institutional design. 

Drawing on lessons from both success and failure across the MENA region, six imperatives stand out:

1/ Integrate with Lebanon’s Debt Restructuring Strategy
A sovereign wealth fund is expected to be ring-fenced from the country’s unresolved sovereign debt burden. Its legal architecture is expected to have explicit shield assets from creditor claims while clarifying how, if at all, the fund might contribute to future restructuring packages. Lebanon must also explicitly prohibit the use of SWF assets as collateral for new debt issuance-a practice that has compromised fund integrity in countries like Venezuela and Angola.
 

In several crisis-hit economies, including Venezuela and Angola, the absence of clear SWF–debt linkages created prolonged legal disputes and deterred investor confidence. Lebanon cannot afford similar ambiguity.

2/ Legislate a Rule-Based Framework

A credible SWF is expected to be governed by strict fiscal rules. Annual withdrawals should be capped at 5%-7% of fund assets and permitted only under defined macroeconomic stress conditions-such as a sharp GDP contraction or a commodity price shock.
 

Algeria’s Revenue Regulation Fund (FRR) lacked such safeguards, enabling unchecked withdrawals to finance recurring expenditures. By 2017, despite years of high oil prices, the fund was fully depleted-illustrating the consequences of vague or unenforced rules.

3/ Guarantee Full Institutional Independence

The SWF should be managed by an autonomous authority entirely separate from the Ministry of Finance and Banque du Liban. A statutory board is expected to include financial experts, civil society representatives, and a diaspora delegate selected through a merit-based process.

Libya’s sovereign fund, once Africa’s largest, disintegrated into a contested asset pool after 2011, as political factions vied for control. Its collapse underscores the existential importance of institutional autonomy in conflict-prone states.

4/ Mandate Full Transparency and Ethical Guardrails

Transparency must be embedded through real-time disclosure of fund performance, asset allocations, and all withdrawals—accessible via a public dashboard. The fund should undergo dual audits (national and international), and publish ethical exclusion lists based on models like Norway’s Government Pension Fund Global.

Such lists signal zero tolerance for corruption and preempt future scandals by banning investments in sectors or firms linked to Lebanon’s entrenched oligarchic networks. Norway and Chile have demonstrated that transparency not only protects funds—it builds enduring public trust.

5/ Engage and Empower the Lebanese Diaspora

The diaspora should be treated not merely as a symbolic constituency, but as a strategic governance and investment partner. Engagement mechanisms could include:

• Dedicated diaspora bond programs
• Passive digital platforms to track fund performance
• A non-partisan diaspora oversight seat, selected through independent expat business networks rather than sectarian quotas

Qatar’s QIA, for example, leveraged diplomatic and economic ties with global actors to shield its economy during the Gulf blockade. Lebanon’s diaspora can offer similar stabilizing potential—if meaningfully integrated into the SWF architecture.

6/ Align Investments with Long-Term Sustainability
While the SWF’s primary objective should remain capital preservation through diversified global investments, a carefully structured carve-out for domestic renewable energy infrastructure could serve a dual purpose: (1) hedging against fossil fuel volatility and (2) accelerating Lebanon’s energy transition. Transparent investment vehicles in solar, wind, and energy storage-executed via public-private partnerships-can strengthen resilience without politicizing fund assets.

Funds such as Chile’s ESSF and the UAE’s Mubadala have incorporated renewable energy mandates to link fiscal stability with sustainable development.

Yet none of these design principles will matter if political elites remain unaccountable. SWF reform is not just a technical exercise—it must overcome the same clientelist barriers that have stalled every major reform effort since the crisis.

A Fund Is Not Enough-Governance Is Everything

Sovereign wealth funds are not transformative by default-but when built with foresight and discipline, they offer a rare convergence of macroeconomic stability and intergenerational equity.  For Lebanon, the 2023 SWF law represents only the starting line-not the finish.

To succeed, the fund must invert the logic of extractive governance: building institutional guardrails before the revenues flow, not scrambling for them after the wealth disappears. And realism is essential-because the SWF’s transformative potential ultimately hinges on whether commercially viable hydrocarbon revenues if ever materialize at scale. Even if they don’t, a robust SWF architecture still serves a critical purpose: a stress test for restoring fiscal discipline, institutional transparency, and investor confidence.

With a significant segment of the Lebanese population distrusting state institutions, the fund’s design is more than a technocratic exercise-it is a referendum on the credibility of national recovery. If Lebanon internalizes the hard lessons of Libya’s institutional collapse, Algeria’s fiscal erosion, Qatar’s crisis-time resilience, and the UAE’s strategic patience, it may still transform legislation into legacy. But doing so requires something Lebanon has never structurally embedded: discipline before politics.

Parliament must act now to strengthen the sovereign wealth fund law-clarifying governance rules, enforcing independent oversight, and sealing institutional gaps-before drilling begins. Oil may lie hidden beneath the sea, but credibility must rise from transparent governance.