Beirut, Lebanon – Caretaker Prime Minister Hasan Diab approved a plan to decrease crucial fuel subsidies, a move observers warned could unleash a “social catastrophe” as the economy continues to crumble.
Diab said the goal was to secure enough fuel throughout the summer, where he hoped to see expats and tourists visit the cash-strapped country.
It would now import fuel at 3,900 Lebanese pounds to the dollar, as opposed to 1,500. A ministerial source told Al Jazeera the price of a tank of petrol could increase by almost twofold.
The decision was made following a meeting last week between President Michel Aoun, central bank Governor Riad Salameh, caretaker Energy Minister Raymond Ghajar, and caretaker Finance Minister Ghazi Wazni at Baabda Palace.
Economist and American University of Beirut professor Jad Chaaban told Al Jazeera that rolling back on subsidies at this point in time is a huge risk. Not only are livelihoods worsening, but also protesters have blocked roads across the country more frequently, as they fear having to live in even more dire economic conditions.
“If you double the price [of gasoline and fuel] then you double the price in all products and services that require them,” the economist said, fearing further tensions. “It’s a national security issue now.”
Cash card programme
Diab, who has opposed lifting subsidies without an alternative programme in place, was not at the meeting in Baabda Palace.
Government sources told Al Jazeera that he initially opposed the subsidy rollback policy, but changed his mind after a joint parliamentary committee endorsed a draft law for a targeted cash card programme on Thursday. The cash cards would replace the country’s expensive subsidies on wheat, fuel, and medicine.
The value of the Lebanese pound’s ongoing decline hit an all-time low at 16,000 to the US dollar.
Lebanon has been without a full-fledged government for almost 11 months, and continues to reel from an economic crisis that has dragged half its population into poverty.
Energy Minister Ghajar hinted recently that fuel subsidies could soon be ushered out.
“Those who can’t pay 200,000 Lebanese pounds for a tank should stop using a car and use something else,” he said after a parliamentary meeting. A government source told Al Jazeera that petrol prices would not increase as significantly as what the minister claimed.
Lebanon’s handful of importers and distributors rely on central bank subsidies to import fuel in US currency, which costs roughly $3bn annually.
The crisis-hit country also subsidises wheat, medicine, and some food items, which in total cost another $3bn every year. Officials have hinted that this programme is no longer sustainable, with an estimated $14bn left in foreign reserves in the central bank.
However, rising global prices has caused fuel shortages and price increases. Panicking drivers wait in long lines for hours to have their cars partially filled, as refuelling stations are rationing whatever supply they have. The Lebanese army and security forces often intervened to break up scuffles and at times even armed confrontations.
Demonstrators burn tyres to block Martyrs’ Square in the centre of Lebanon’s capital Beirut on Saturday [File: Anwar Amro/AFP]‘Social catastrophe’
International organisations and economists have criticised the programme’s effectiveness.
The International Labour Organization and UNICEF estimate 80 percent of subsidies benefit the country’s wealthiest 50 percent, as they have greater buying power. Smugglers have also benefitted from the programme by selling subsidised goods for a greater profit outside of the country instead, notably in neighbouring Syria.
But at the same time, the United Nations warned that lifting the subsidies could cause a “social catastrophe”, as Lebanon does not have viable social security networks and effective public services. The country is already experiencing medicine shortages and can barely keep the lights on.
Chaaban said the solution ultimately lies in breaking the political impasse, and forming a full-fledged government that can make the economy viable again with international cash injections.
And until then, despite its ineffectiveness and even with cash running dry, Chaaban said the subsidies programme cannot be lifted.
“No country uses money from the central bank to finance imports, but in our situation, we don’t have any option.”
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June 28, 2021 at 03:31PM
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‘Catastrophe’ warning as Lebanese officials lift fuel subsidies - Al Jazeera English
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