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. 

LIMS explained that Lebanon is not the target of an economic embargo and does not have problems importing its needs in fuel. In fact, in July 2021, $830 million worth of fuel entered the country, which was triple the local market’s demand per month, and many other tankers are anchored in Lebanese waters awaiting payment to empty their cargo. The actual problem is that imported fuel does not reach the population. Long queues form at gas stations and many hospitals, companies, and institutions are closing their doors because of the fuel shortage and power outages. 
As it happens, most of the amounts that were imported found their way across the border or on the black market and sold for a higher profit. So long as fuel prices in Lebanon are set below the global price, incentives for smuggling and hoarding will remain and deprive the country from the now scarce resource. The Lebanese government should simply repeal subsidies and fuel will be available immediately to the population.

LIMS said the short-term fluctuations correlate with the government formation taking place. To illustrate, the exchange rate goes down when positive reports break out, only to go back up when complications resurface. With the creation of a new anticipated government, the Lebanese pound will somewhat strengthen, but there is no guarantee of monetary stability. So long as the same old governmental practices persist and the central bank’s FX and/or gold reserves dwindle down, trust in the Lebanese pound will erode further, leading towards more depreciation. 
In fact, LIMS listed some of the needed reforms to ensure a steady currency, namely establishing a currency board and restructuring the public sector. A currency board is a set of strict rules that regulate the central bank’s operations and make sure the currency is 100% backed by foreign exchange reserves. Under this monetary arrangement, the central bank would not be permitted to fund the government, thus keeping depositors’ money safe from appropriation. Once established, a currency board can stabilize the exchange rate indefinitely and pave the way towards other reforms.
As for restructuring the public sector, the government desperately needs to balance its budget by cutting down on wasteful public expenses and rooting out unproductive employees, who owe their jobs solely to electoral favoritism and clientelism. Officials must also amend the tax code, by lowering taxes. In doing so, it would be more attractive to businesses and investors, which would eventually contribute to higher government revenues. LIMS warned that wage corrections cannot take place before the government secures a budget surplus, and that any attempt to increase revenues via a tax spike will backfire, just like it did in 2017 and 2018. Alternatively, the government could adopt a flat tax that promotes better tax compliance and therefore higher state income, similar to ex-soviet states that were plagued by corruption and tax evasion.