Lebanese central bank effectively ends fuel subsidies

BEIRUT, Aug.11 (Reuters) – Lebanon’s central bank has announced that it will offer lines of credit for fuel imports based on the market price of the Lebanese pound from Thursday, ending a subsidy to fuel which has exhausted its reserves since the country sank into the financial crisis.

The move, announced late Wednesday, means fuel prices will rise sharply: A Lebanese broadcaster cited figures showing the price of unsubsidized 95-octane gasoline at more than four times the subsidized price.

This will make it harder for the growing number of people living in poverty in a country whose currency has lost more than 90% of its value in less than two years, in what the World Bank has described as one of the worst depressions of modern history.

But it should also alleviate crippling fuel supply shortages, as incentives for smuggling and storing heavily subsidized fuel disappear, said Nassib Ghobril, chief economist at Byblos Bank.

Bank governor Riad Salameh said earlier today at a Supreme Defense Council meeting that the bank could no longer continue to offer lines of credit and subsidize fuel imports, said a ministerial source and al-Jadeed TV.

Since the onset of the crisis, the central bank effectively subsidized fuel by using its dollar reserves to finance fuel imports at official exchange rates well below parallel market rates.

More recently, the central bank had granted credits for fuel imports at a rate of 3,900 pounds to the dollar, against a parallel market rate of over 20,000 pounds on Wednesday.

Central bank reserves fell from over $ 40 billion in 2016 to $ 15 billion in March. The fuel subsidy costs about $ 3 billion a year.

Senior financial adviser Mike Azar noted that since the bank would continue to sell dollars to importers, they would not need to resort to the market, which would result in an even faster devaluation of the pound.

The official rate for the Lebanese pound, against which most wages are compared, is still 1,500 pounds to the dollar, an anchor that was maintained for more than two decades until the crisis erupted in late 2019.

Ghobril said the government now needs to roll out an electronic payment card as quickly as possible to help families in need. Parliament approved the prepaid cards at the end of June.

The decision to end the subsidy and the role of the central bank governor in the decision drew criticism from former Foreign Minister Gebran Bassil.

“The president, the government and the people must prevent the implementation of the plot,” he said on Twitter.

In recent days, gas stations have witnessed long lines and deadly altercations, and most people have experienced prolonged blackouts as diesel became scarce.

The currency crisis means medicines are also hard to come by and commodity prices have skyrocketed, adding to the burden of a population more than half of whom live below the poverty line.

In a June report, the World Bank said the 12-month inflation rate in Lebanon rose to 157.9% in March this year, from 10% in January 2020.

Reporting by Laila Bassam, Nafisa Eltahir and Tom Perry; Editing by David Evans, Jonathan Oatis and Richard Pullin

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