CBSP, Subsidies, Economic Update, Social Safety Net

Subsidies Ruining Economy, Must Be Lifted Immediately

14:43 | 1 December 2020LIMS output
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Subsidies

Facing extremely harsh hyperinflation, the Lebanese government opted for a subsidy program encompassing medicine, fuel, and some 300 other products deemed as “necessities” to support impoverished citizens. LIMS emphasized that subsidies are being funded by dollar denominated bank deposits, while depositors are restricted from accessing their money. As a matter of fact, the program costs 40,000 billion LBP per year, double the amount approved by parliament for government spending in 2020. Tripling the public expenses ought to have reinvigorated the economy, but shortages have become the norm instead. In fact, LIMS stressed that subsidies have failed to reach the intended target and the money is ending up in the hands of smugglers. The program should be repealed and replaced with a more efficient mechanism targeting people rather than goods. 

At the same time, LIMS criticized the “ration stamps” suggestion, as it is prone to corruption and would increase clientelism. Political parties would give the ration stamps to their loyal supporters, at the expense of those who need them the most. Furthermore, ration stamps restrict the consumption to specific items, failing to consider the differing needs of each individual. An even better alternative would be an unrestricted cash transfer program (quasi-universal basic income), effectively giving people the option of using the aid to what fits their personal needs. Supporting citizens, rather than subsidizing medicine, fuel, and goods ought to disincentivize the smuggling, consequently cutting the losses that have been amassing for the past year.  More importantly, LIMS pointed out that subsidies are just patchwork to a crisis caused by the inflation. Tackling the root cause of inflation, by addressing the currency devaluation, is essential and therefore, a currency board would provide the fundamental solution to subsidies.

LIMS Media Interviews:
  • Solution Must Start By Addressing The Deterioration Of The Lira Exchange Rate, December 9, 2020: Al Marada, Article AR
  • Subsidy Policy Was Patchwork That Benefited Major Traders And Smugglers, December 9, 2020: AlKalima Online, Article AR
  • Varying Opinions On Subsidy Program Can’t Hide The Fact That It’s Funded By Dollar Deposits, December 10, 2020: El Ektisad, Article AR
  • Rationalizing Subsidies Could Cut Losses And Reduce Smuggling, December 10, 2020: OTV, TV Interview AR
  • What Are The Gaps Of The Subsidy Mechanism And Who Are The Real Beneficiaries, December 10, 2020: VDL, Radio Interview AR
  • Dialogue Forum To Discuss Crisis, Its Ramifications, And Practical Solution For Recovery, December 20, 2020: sada4press, Article AR