CBSP, Subsidies, Economic Update, Social Safety Net

Subsidy Program Depleting Central Bank’s Reserves

13:39 | 1 August 2020LIMS output
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Subsidy

Facing the worst economic recession in Lebanon’s modern history, the government asked the central bank to subsidize fuel, medicine, wheat, and 300 other items. LIMS argued that this policy will drain foreign exchange reserves within 3 months and brutal consequences lie ahead unless a miracle happens. The organization explained that the current smuggling of products to Syria is due to subsidies, causing shortages at home, and stimulates the black market.  Unfortunately, the vulnerable population does not reap the benefits of the subsidy program. Instead, the wealthiest purchase these items in bulk and then resell abroad for a marked up price, earning a hefty profit. In the end, the policy is leaving Lebanon’s shelves empty and the black market busier than ever. 
As a matter of fact, the current government blamed previous cabinets for subsidizing the Lebanese pound (LBP) pegged at an overvalued rate of 1,507 LBP to the dollar. Yet the purpose of the current policy seems to hold onto an unofficial market rate at around 7,000 LBP to the dollar, as importers of the subsidized items are getting their dollars from the central bank. Such a plan resulted in stabilizing the exchange rate, at the cost of depleting the central bank’s reserves at a rate of nearly $600 million a month. Once the reserves are gone, importers will have to get their dollars from the black market and the Lebanese pound’s rate will collapse. 

LIMS Media Interviews:
  • Exchange Rate Stabilizes, But For How Long, August 12, 2020: MTV, TV Interview AR
  • Depleting The Central Bank Reserves, 2 Available Alternatives, August 12, 2020: OTV, TV Interview AR
  • Subsidies, A Deprived Population And Monopolists Reaping Benefits, August 17, 2020: El Elkisad, Article AR
  • Exchange Rate Stabilizes At 7,000 LBP To The Dollar, August 20, 2020: VDL, Radio Interview AR
  • Have People’s Deposits Vanished, August 22, 2020: Al Jazeera, Article AR
  • Ending Subsidies Too Late Is An Effective 100% Haircut, August 22, 2020: Nidaa Al Watan, Article AR
  • What It Means To End Subsidies, August 24, 2020: Annahar TV, TV Interview AR
  • Increase In Prices And Decrease In Purchasing Power, August 25, 2020: VDL News, Radio Interview AR
  • The Central Bank’s Continued Struggle With Foreign Currency Reserves, August 26, 2020: Anadol, Article AR