Citigroup Global Markets analyst David Lubin sees Israel's balance of payments current account benefiting to the tune of $4 billion annually from offshore gas discoveries.
"A large gas discovery and the potential for much more have raised the prospect of both reducing Israel’s heavy dependence on fuel imports, and generating gas export revenues towards mid-decade," Lubin writes..
"Although there are huge uncertainties in forecasting the likely balance of payments impact of Israel’s gas, we think that the current account could benefit to the tune of around $4 billion per year at current prices, or just under 2% of this year’s GDP. This would improve Israel’s already strong balance of payments position, and there might well be a good case for Israel to build a Norwegian-style sovereign wealth fund, since the central bank is already blessed with very substantial foreign exchange reserves."
However, the gas story is not all good news for the Israeli economy. "Israel’s emergence as a gas exporter should strengthen the exchange rate, which in turn might create some “Dutch Disease” risks for the real economy. For that reason, we think that Israel’s gas isn’t likely to provide a big boost to the real economy: this is a currency story more than a growth story," Lubin's report says.
"It is possible that some of the large capital inflows that Israel’s received since early 2009 are anticipating the balance of payments impact of Israel’s gas: net financial inflows to Israel rose to $5.2 billion in the second quarter of 2010. Our guess, though, is that this behavior is likely to intensify as more information becomes available about Israel’s gas potential in the coming months," the report concludes.
Published by Globes [online], Israel business news - www.globes-online.com - on September 16, 2010
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