CBSP, Subsidies, Economic Update, Social Safety Net

To Save Lebanon, End Subsidies Now

13:46 | 1 September 2020LIMS output
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Subsidies

To combat hyperinflation, the government launched a subsidy program targeting fuel, wheat, medicine and 300 “essential” items. LIMS stressed that the scheme is funded with dollar deposits, while depositors cannot access their money at the banks. In fact, deposits are being drained without the consent of depositors, banks, or even the parliament. Such an act is very detrimental to the trust in the banking sector and the economy. 

Subsidies were intended to make essential consumer products available for cheaper, to help citizens cope with the crisis. However, most subsidized goods ended up being smuggled to neighboring countries or sold locally on the black market for higher prices. So far, product shortages, depletion of the central bank’s reserves, and benefits going exclusively to smugglers has been the result. The subsidy program proved to be a fundamental mistake and ought to be repealed.

On the other hand, subsidies did indeed helped stabilize the exchange rate at 7,000 LBP to the dollar, but the central bank announced that no means are available to continue the program beyond the three upcoming months. LIMS explained that additional currency devaluation is expected to occur when subsidies are lifted. The size of this devaluation will correlate with the loss of reserves, meaning the more reserves we lose in the subsidy program, the stronger the currency devaluation and hyperinflation will be when the subsidies stop.  

LIMS worked with the World Bank and the Ministry of Economy and Trade on cash transfers, as an alternative to subsidies. Cash transfers would directly help individuals, give them the liberty of choosing where to spend the money, and cost substantially less than subsidies. Such a reform would also take the program away from the central bank (depositors’ money) and put it back in the government budget where it belongs. The shift would reveal the true cost of the program, impose some fiscal constraints, and allow the scrutiny of the parliament.   

LIMS Media Interviews:
  • USD Price To Further Soar In Lebanon If No Proper Deal With IMF, September 9, 2020: Xinhuanet, Article EN
  • Subsidies Reserves Almost Up, What’s The Alternative, September 9, 2020: MTV, TV Interview AR
  • Are Subsidies Helping The Citizens Or The Traders, September 11, 2020: OTV, TV Interview AR
  • Next Government Has Huge Challenges To Face, The Biggest Being Reforms, September 12, 2020: Radio Lebanon, Radio Interview AR
  • Next Government Has Huge Challenges To Face, The Biggest Being Reforms, September 12, 2020: El Ektisad, Article AR
  • What Will Happen After The Subsidies Reserves Are All Spent, September 15, 2020: Annahar TV, TV Interview AR
  • Ration Cards A Temporary Solution Soon To Be Plagued By Inflation, September 24, 2020: Nidaa Al Watan, Article AR
  • Lebanon Heading Towards More Inflation And Increase In Prices, September 30, 2020: Sawt Kol Loubnan: Radio Interview AR