Lebanon’s central bank to offer credit lines for fuel imports at market price, ends subsidy

Lebanese wait to fill their gas cylinders in the southern city of Sidon amidst a deepening economic crisis, on Aug. 10, 2021. (AFP)

• The central bank effectively ends fuel subsidy that has drained its reserves since 2019
• Lebanon is in the throes of a financial downturn branded by the World Bank as one of the worst since the mid-19th century

BEIRUT: The Lebanese central bank (Banque du Liban) said it would offer a line of credit for fuel importers based on the market price for the Lebanese pound from Thursday, effectively ending a fuel subsidy that has drained its reserves since the country descended into financial crisis.
The move, announced late on Wednesday, means fuel prices will rise steeply: One Lebanese broadcaster cited figures showing the price of unsubsidized 95 octane gasoline at more than four times the subsidized price.
In a statement, the central bank said the decision will be effective Thursday and new prices will be determined by the Ministry of Energy.
The decision comes amid an unfolding energy crisis that has plunged the country into hours of darkness, threatened hospitals and businesses with shutdown and sparked deadly violence among consumers and motorists looking for fuel.
It will spell more hardship for the growing number of people in poverty in a country whose currency has lost more than 90 percent of its value in less than two years, in what the World Bank has described as one of the sharpest depressions in modern history.
But it should also alleviate crippling fuel supply shortages as incentives to smuggle and hoard heavily subsidized fuel disappear, said Nassib Ghobril, chief economist at Byblos Bank.
Bank Governor Riad Salameh had said earlier in the day at a meeting of the Supreme Defense Council that the bank could no longer continue to offer lines of credit and subsidize fuel imports, a ministerial source and Al-Jadeed TV said.
Since the onset of the crisis, the central bank had been effectively subsidizing fuel by using its dollar reserves to finance fuel imports at official exchange rates well below the rates on the parallel market.
The crisis worsened when authorities began to reduce subsidies on fuel amid a deepening economic crisis unfolding since 2019. 
The price of a gallon of fuel has increased by more than 220 percent in the last year, triggering panic and a thriving black market.
Most recently, the central bank had been extending credit for fuel imports at a rate of 3,900 pounds to the dollar, compared with a parallel market rate of more than 20,000 pounds on Wednesday.
The central bank’s reserves have sunk from more than $40 billion in 2016 to $15 billion in March. The fuel subsidy costs some $3 billion a year.
Senior finance adviser Mike Azar noted that since the bank would continue to sell dollars to importers, they wouldn’t need to resort to the market causing an even more rapid devaluation of the pound.
The official rate for the Lebanese pound, against which most salaries are benchmarked, is still 1,500 pounds to the dollar, a peg that was maintained for more than two decades until the crisis erupted in late 2019.
Ghobril said the government must now roll out an electronic cash card as quickly as possibly to help needy families. Parliament approved the prepaid cash cards at the end of June.
In recent days, gas stations have witnessed long queues and deadly altercations, and most people have experienced extended blackouts as diesel becomes scarce.
The hard currency crunch and the central bank’s foreign reserves have been depleted in past months in the import-dependent country, where medicine, fuel and basic needs have been running short and a black market has been thriving.
The move may ease some of the shortages but is likely to heighten social tension in the small country where over 50 percent of the population has fallen below the poverty line. 
In a June report, the World Bank said Lebanon’s 12-month inflation rate has risen to 157.9 percent in March this year from 10 percent in January 2020.
The fuel crisis has turned violent before, with motorists clashing at gas stations after long waits and fuel running out. On Monday, at least three people were killed in violence over access to fuel, reflecting the growing frustration over a continued problem that has only gotten worse.
The financial crisis — rooted in years of corruption and mismanagement — has been made worse by the failure of political leaders to agree on a new government to chart a path out of the crisis and negotiate a recovery package with the International Monetary Fund. A caretaker government has been in charge since last year.
(With Reuters and AP)