Lebanon’s central bank said it would offer credit lines for fuel imports based on the market price for the Lebanese pound from Thursday, effectively ending a fuel subsidy that has drained its reserves since the country descended into financial crisis.
The move, announced late on Wednesday, means fuel prices will rise steeply: One Lebanese broadcaster cited figures showing the price of unsubsidised 95 octane gasoline at more than four times the subsidised price.
It will spell more hardship for the growing number of people in poverty in a country whose currency has lost more than 90 percent of its value in less than two years, in what the World Bank has described as one of the sharpest depressions in modern history.
But it should also alleviate crippling fuel supply shortages as incentives to smuggle and hoard heavily subsidised fuel disappear, said Nassib Ghobril, chief economist at Byblos Bank.
Bank Governor Riad Salameh had said earlier in the day at a meeting of the Supreme Defense Council that the bank could no longer continue to offer lines of credit and subsidize fuel imports, a ministerial source and Al-Jadeed TV said.
Since the onset of the crisis, the central bank had been effectively subsidizing fuel by using its dollar reserves to finance fuel imports at official exchange rates well below the rates on the parallel market.
Most recently, the central bank had been extending credit for fuel imports at a rate of 3,900 pounds to the dollar, compared with a parallel market rate of more than 20,000 pounds on Wednesday.
The central bank’s reserves have sunk from more than $40 billion in 2016 to $15 billion in March. The fuel subsidy costs some $3 billion a year.
Senior finance adviser Mike Azar noted that since the bank would continue to sell dollars to importers, they wouldn’t need to resort to the market causing an even more rapid devaluation of the pound.
The official rate for the Lebanese pound, against which most salaries are benchmarked, is still 1,500 pounds to the dollar, a peg that was maintained for more than two decades until the crisis erupted in late 2019.
Ghobril said the government must now roll out an electronic cash card as quickly as possibly to help needy families. Parliament approved the prepaid cash cards at the end of June.
The move to end the subsidy and the central bank governor’s role in the decision drew criticism from former Foreign Affairs minister Gebran Bassil.
“The president, the government and the people must prevent the implementation of the conspiracy,” he said on Twitter.
In recent days, gas stations have witnessed long queues and deadly altercations, and most people have experienced extended blackouts as diesel becomes scarce.
The hard currency crunch means that medicines are also hard to find and prices for basic goods have skyrocketed, adding to the burden for a population where more than half are below the poverty line.
In a June report, the World Bank said Lebanon’s 12-month inflation rate has risen to 157.9 percent in March this year from 10 percent in January 2020.