CBSP, Subsidies, Economic Update, Social Safety Net

Subsidies Reduced in August and Will be Removed End of September

14:37 | 1 August 2021LIMS output
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Subsidies

On August 11, Lebanon’s Central Bank Governor Riad Salemeh, made the decision to stop supplying dollars to fuel importers at a preferential exchange rate, effectively ending the Central Bank Subsidies Program (CBSP). He explained that there was a fuel shortage in July, despite subsidizing the July fuel imports that should have lasted 3 months. The government radically objected Salameh’s decision, labeling the move as “illegal”. An agreement was finally reached on August 21 to first, reduce fuel subsidies from around 70% to around 50% on August 22, and then to completely remove subsidies by the end of September, the same time cash cards will be ready to be rolled out.
LIMS praised the central bank’s decision to lift subsidies on fuel, albeit late. Lifting subsidies would bring fuel back to the market, end the rationing of electricity by private generators, put a stop to the never-ending queues in front of the gas stations, and allow businesses to return to work and production. Unfortunately, LIMS saw that the government missed an opportunity to end the subsidy policy once and for all, when it chose to extend the program, even if at a lower rate, till the end of September. This arrangement will keep the fuel drought in place for an extra month, as the profit margin of smugglers and black-market dealers remains considerably high.
Furthermore, LIMS explained that the subsidies mechanism has also changed. In the previous scheme, the cost of subsidies was registered as a loss to the central bank. However, as part of the new system, the government will borrow money from the central bank to finance subsidies from the public budget. So technically, the program is still financed using the central bank’s foreign exchange reserves, but the loss is now registered on the government’s balance sheet.
LIMS criticized the populist policy of cracking down on fuel hoarders and explained that despite the large media coverage and the shaming game, this policy did little to alleviate the crisis. In fact, LIMS insisted that completely repealing subsidies and repricing commodities at their market price is the only way out of the fuel crisis. In all countries that adopted a subsidy policy, incentives to smuggle and hoard grew overwhelmingly, and shortages were the inevitable end result. During the first half of 2021, Lebanon spent $1.2 billion on imported subsidized medicine, double the amount from the previous year. Yet, medicine shortages are still jeopardizing residents’ lives.


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*|IF:ARCHIVE_PAGE|*LIMS Media Interviews:

  • Ways Out of The Fuel Crisis Are Available…Will They Be Adopted? August 2, 2021: Annahar, Article AR
  • Why Are Fuel And Medicine Missing From Local Markets? August 10, 2021: Independent Arabia, Article AR
  • Only Way To End Fuel Shortages Is To Lift Subsidies, August 11, 2021: VDL News, Radio Interview AR
  • Central Bank Informs Supreme Defense Council Of Its Inability To Subsidize Fuel Anymore, August 11, 2021: Al Mamlaka, TV Interview AR
  • Lebanese Expecting Fuel Prices To Skyrocket Once Subsidies Are Lifted, August 12, 2021: Al Sharek, Article AR
  • Implications Of The Central Bank Governor’s Decision To Lift Subsidies, August 12, 2021: France 24, TV Interview AR
  • Why Are Fuel Queues Back Despite the Repeal of Subsidies? August 13, 2021: Janoubia, Article AR
  • Lebanon’s Central Bank Has Announced An End To Fuel Subsidies That Have Drained The Reserves, August 14, 2021: Al Jazeera English, TV Interview EN
  • What’s Next for Lebanon? August 15, 2021: Al Jazeera English, TV Interview EN
  • Salameh Hinted at It, And Politicians Want It…A Critical Decision That Would Lead To Further Depreciation, August 15, 2021: Lebanon 24, Article AR
  • Who’s To Blame for The Akkar Explosion? August 15, 2021: Al Sharek, TV Interview AR
  • How Can the Fuel Crisis Be Resolved in A Single Day? August 16, 2021: Annahar, TV Interview AR
  • Lifting Subsidies Is A Necessary Evil, August 18, 2021: VDL, Radio Interview AR
  • Fuel Crisis Roils Lebanon, August 19, 2021: Al Monitor, Article EN
  • Lebanon, Worsening Crisis Amid The Repeal Of Fuel Subsidies, August 21, 2021: Chanel 9, TV Interview AR
  • What Comes After the Price Increase Of Fuel? August 22, 2021: Al Yawm, TV Interview AR
  • Lebanese Government Raises Fuel Prices By 70%, August 22, 2021: Alhurra, TV Interview AR
  • After Lifting Subsidies, Authorities Delaying Societal Catastrophe, August 22, 2021: Al Majala, Article AR
  • The Fuel Settlement Hides A Trap, August 22, 2021: Lebanon 24, Article AR
  • Baabda Settlement Complicates Fuel Crisis…Queues Will Remain And Currency Will Depreciate Further, August 24, 2021: Annahar, Article AR
  • The Reason For Persisting Private Generators’ Power Rationing, August 25, 2021: Al Joumhouria, Article AR
  • Is The Distribution of Confiscated Medicine Enough to Alleviate the Crisis? August 26, 2021: VDL, Radio Interview AR
  • Cash Cards Await Funding…A Faltering Electoral Bribe, August 27, 2021: Al Taharri, Article AR
  • Lifting Subsidies Is Nearby…Will It Last Until The End of September? August 27, 2021: Al Jadeed, TV Interview AR
  • The Problems Facing The Lebanese After The Repeal Of Subsidies, August 14, 2021: Radio Lebanon, Radio Interview AR*|END:IF|