Faced with one of the worst economic crises of decades, Lebanon’s central bank has decided to end subsidies on fuel and instead offer credit lines for imports based on the market price for the Lebanese pound. The move has pushed fuel prices to an all-time high and sent people into a frenzy in the cash-strapped nation. The Army has been deployed at filling stations to stop panic-stricken people from hoarding amid crippling fuel shortages. Many businesses are scaling back operations or shutting down. 

Controversial Move from the Central Bank

Over the years, the bank had been subsidizing fuel by providing dollars at exchange rates below the right price of the pound – 3,900 pounds to the dollar compared with market rates above 20,000, draining the foreign currency reserve by $14 billion. This decision comes amid concerns of mandatory maintenance of a portion of deposits, which have dwindled to $13 billion. 

Facing a backlash over the decision, central bank governor Riad Salameh said, “We are saying to everyone: You want to spend the mandatory reserve, we are ready, give us the law. It will take five minutes,” 

Profound Impacts on the Economy

According to financial analysts, the subsidy scheme has merely fostered smuggling and stockpiling, with the central bank forced to fund traders who were not bringing their products to the market. Despite spending $800 million on fuel imports in the last month, diesel, petrol, and electricity are still in short supply in the country. The price of a gallon of fuel has increased by more than 220% in the last year, indicating a thriving black market. The government has so far been incompetent to secure deliveries of imported fuel, experts stressed.

The current fuel crisis is the consequence of a broader economic meltdown that has sunk the Lebanese pound by 90% in less than two years and pushed more than half the population into poverty. The World Bank has criticized Lebanon for a deliberate lack of policy to tackle, what it says, one of the worst depressions since the mid-19th century. 

Lebanon had been without a government until recently since Hassan Diab quit as Prime Minister last August after a deadly explosion at Beirut port. The new Lebanese government under Prime Minister Najib Mikati has said removing fuel subsidies is a crucial step towards pulling the country out of the crisis. The experts believe the import-dependent country now must quickly draw a credible economic reform blueprint to unlock billions of dollars in international aid and engage with the International Monetary Fund for a desperately urgent bailout.

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