Central bank will end subsidies for basic goods in 2 months

In Lebanon, the government’s preoccupation with limiting a staggering hike in coronavirus cases overshadowed its efforts to tackle the equally dangerous file of financing subsidies for basic goods. 

With dollar reserves at Banque Du Liban (BDL) dwindling, the country is inching closer to having to adopt new mechanisms for redistributing available support. 

A meltdown without precedent has crashed Lebanon’s currency, paralyzed banks, and sent inflation soaring. 

As dollar inflows dried up, the central bank has used its reserves to provide foreign currency for key imports – fuel, wheat, and medicine – and some basic goods. 

Political forces, for their part, are demanding the rationalization of subsidies, with some proposing the scrapping of support for some goods to buy more time on other necessities deemed more vital.

Subsidies offered by the state and BDL totaled around $5 billion in 2020. How much of the foreign currency reserves is left for the country to use in the face of its spiraling financial crisis remains a mystery. 

Government estimates suggest that Lebanon has less than a billion dollars to go, but the central bank governor, Riad Salameh, has recently said that almost $2 billion are left. 

Regardless of projected figures, Lebanon spends an average of $500-$600 million monthly on subsidized goods. This means that remaining reserves, according to the currently approved mechanism, can last between two to four months tops. 

Lebanon’s subsidy system provides that importers pay 15% of their total invoices in US dollars and 85% in Lebanese lira, which BDL converts to dollars at the official exchange rate in order to pay foreign suppliers. 

According to analysts the reason the subsidy program is costly for the Central Bank is because a large percentage of the subsidized goods end up in Syria. They are being smuggled through illegal border points that are controlled by the Iranian backed Hezbollah militant group . The heavily armed Hezbollah controls all the branches of government in Lebanon and all the legal and illegal border crossing

Asharq Alawsat/YL