‘Catastrophe’ warning as Lebanese officials reduce fuel subsidies | Current Affairs in Commerce and Economics

Beirut, Lebanon – Interim Prime Minister Hasan Diab has approved a plan to reduce crucial subsidies to fuel, a move that observers have warned could trigger a “social catastrophe” as the economy continues to collapse.

Diab said the goal was to ensure enough fuel for the entire summer, where he hoped to see expats and tourists visiting the country without money.

It will now import fuel at 3,900 Lebanese pounds in dollars, as opposed to 1,500. A ministerial source told Al Jazeera that the price of a petrol tank could increase by almost twice.

The decision was made after a meeting last week between President Michel Aoun, central bank governor Riad Salameh, interim energy minister Raymond Ghajar and interim finance minister Ghazi Wazni at the Baabda palace.

Economist and professor at the American University of Beirut, Jad Chaaban, told Al Jazeera that the return on subsidies at this point in time is a huge risk. Not only do the means of subsistence worsen, but also the protesters blocked the roads across the country more often, as they fear having to live in even harsher economic conditions.

“If you double the price.” [of gasoline and fuel] then double the price on all products and services that require them, “the economist said, fearing further tensions.” Now it’s a national security issue. “

Cash card program

Diab, who opposed the lifting of the grants without an alternative program in place, was not at the meeting at Baabda Palace.

Government sources have told Al Jazeera that it initially opposes the aid repayment policy, but has changed its mind after a joint parliamentary committee approved a bill for a targeted cash card program. Thursday. Cash cards would replace the country’s costly subsidies for grain, fuel and medicine.

The value of the ongoing decline of the Lebanese pound has hit an all-time low of 16,000 against the US dollar.

Lebanon has been without a complete government for almost 11 months, and continues to emerge from an economic crisis that has dragged half of its population into poverty.

The Minister of Energy, Ghajar, recently mentioned that fuel subsidies could soon be inaugurated.

“Those who cannot pay 200,000 Lebanese pounds for a tank will have to stop using a car and use something else,” he said after a parliamentary meeting. A government source told Al Jazeera that gas prices will not increase as significantly as the minister said.

Lebanon’s handful of importers and distributors rely on central bank subsidies to import fuel into U.S. currency, which costs about $ 3 billion a year.

The country affected by the crisis also subsidizes grain, medicine and certain food products, which in total cost another $ 3 billion each year. Officials have realized that this program is no longer sustainable, with an estimated $ 14 billion in foreign reserves in the central bank.

However, rising world prices have caused fuel shortages and price increases. Panicked drivers wait in long lines for hours to get their cars partially full, since gas stations are rationing all the supplies they have. The Lebanese army and security forces often intervene to break up clashes and sometimes even armed confrontations.

Protesters burn tires to block Martyrs’ Square in central Lebanese capital Beirut on Saturday [File: Anwar Amro/AFP]

“Social catastrophe”

International organizations and economists have criticized the effectiveness of the program.

The International Labor Organization and UNICEF estimate 80 per cent of grants to be the 50 per cent richest in the country, as they have greater purchasing power. Smugglers have also benefited from the program by selling subsidized goods for a greater profit outside the country instead, particularly in neighboring Syria.

But at the same time, the United Nations has warned that the lifting of subsidies could cause a “social catastrophe”, since Lebanon does not have viable social security networks and effective public services. The country already knows shortages of medicines and can barely keep the lights on.

Chaaban said the solution ultimately lies in breaking the political stalemate, and in forming a full government that can make the economy viable again with international cash injections.

And until then, despite its inefficiency and even with the money dry, Chaaban said the subsidy program cannot be lifted.

“No country uses money from the central bank to finance imports, but in our situation, we have no option.”

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