Beirut, Lebanon – Caretaker Prime Minister Hasan Diab approved a plan to reduce key fuel subsidies, and observers warned that as the economy continues to collapse, the move could trigger a “social disaster”.
Diab said the goal is to get enough fuel throughout the summer, where he hopes to see expats and tourists visiting this country with a shortage of funds.
It will now import fuel at a price of 3,900 Lebanese pounds to the US dollar instead of 1,500 Lebanese pounds. A source in the minister told Al Jazeera that the price of a can of gasoline could nearly triple.
The decision was made after President Michel Aoun, Central Bank Governor Riad Salame, Caretaker Energy Minister Raymond Ghajar, and Caretaker Finance Minister Gazi Vazni at the Babda Palace last week. Made after the meeting.
Jad Chaaban, an economist and professor at the American University of Beirut, told Al Jazeera that removing subsidies at this time is a huge risk.Not only has livelihoods deteriorated, but The protesters blocked the road The frequency is higher across the country because they are afraid of having to live in a worse economic environment.
“If you double the price [of gasoline and fuel] Then you double the prices of all the products and services that need them,” the economist said, worried about further tensions. “Now it’s a national security issue. “
Cash card plan
Diab opposed the elimination of subsidies without an alternative, and he did not attend the meeting at the Babdah Palace.
Government sources told Al Jazeera that he initially opposed the subsidy rollback policy, but changed his mind after the joint parliamentary committee approved a draft law on targeted cash card programs on Thursday. Cash cards will replace the country’s expensive subsidies for wheat, fuel and medicines.
The exchange rate of the Lebanese pound against the U.S. dollar continued to fall, hitting a record low of 16,000.
Lebanon has not had a mature government for nearly 11 months and continues to be affected by the economic crisis, which has dragged half of the population into poverty.
Energy Minister Ghajar recently hinted that fuel subsidies may be removed soon.
“Those who cannot pay 200,000 Lebanese pounds for a tank should stop using the car and use other things,” he said after a parliamentary meeting. A government source told Al Jazeera that gasoline prices will not rise sharply as the minister claimed.
A small number of importers and distributors in Lebanon rely on central bank subsidies to import fuel in US dollars, at an annual cost of approximately US$3 billion.
This crisis-hit country also subsidizes wheat, medicines and some foods, spending a total of US$3 billion each year. Officials have hinted that the plan is no longer sustainable, and it is estimated that the central bank’s foreign exchange reserves remain at 14 billion U.S. dollars.
However, global price increases have led to fuel shortages and price increases. The panicked drivers lined up for several hours to partially fill up their cars because the gas station was rationing whatever supplies they had. The Lebanese army and security forces frequently intervene to break the melee and sometimes even armed confrontation.
International organizations and economists criticized the effectiveness of the plan.
The ILO and UNICEF estimate that 80% of subsidies benefit the richest 50% of the country because they have greater purchasing power. Smugglers have also benefited from the program. They sell subsidized goods abroad for greater profits, especially in neighboring Syria.
But at the same time, the United Nations warned that the removal of subsidies could lead to “social disaster” because Lebanon does not have a viable social safety net and effective public services. The country is already facing a shortage of medicines and it is almost impossible to continue turning on the lights.
Chaaban said that the ultimate solution is to break the political deadlock, form a mature government, and make the economy viable again through international cash injection.
Before that, despite its inefficiency and even running out of cash, Chaban said that the subsidy program could not be cancelled.
“No country uses central bank money to finance imports, but in our case, we have no choice.”