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Lebanese Brace for Higher Fuel Prices as Government Cuts Subsidy

Lebanese Brace for Higher Fuel Prices as Government Cuts Subsidy

Lebanese officials agreed Saturday to effectively reduce subsidies on fuel imports, a move that’s expected to increase prices at the pump while easing shortages that have crippled the country. 

The central bank said last week that it could no longer supply dollars to fuel importers at the subsidized rate of 3,900 pounds and would shift to the market rate, which according to the official Sayrafa platform stands at about 16,500 pounds per dollar.

Under the latest compromise, the government will temporarily cover half the loss -- about 8,000 pounds -- from its own coffers, with the remainder passed onto the consumer in higher prices. The central bank will open an account to cover the subsidy through September, Lebanese President Michel Aoun said in a statement. 

The fuel crisis has exacerbated power blackouts and resulted in miles-long lines at gasoline stations during Lebanon’s worst financial meltdown in memory. A banking crisis that erupted in late 2019 deprived millions of their life savings while the currency has collapsed, triggering triple-digit inflation and pushing more than half the population into poverty. 

Lebanese Brace for Higher Fuel Prices as Government Cuts Subsidy

The government has defaulted on its international debt and failed to take measures required to gain international support.  

Fuel importers say the central bank has been slow to open letters of credit at the subsidized rate, resulting in delays and queues. Shortages are also widely believed to have been exacerbated by hoarding and smuggling to Syria, where fuel fetches higher prices. 

In a television appearance, Aoun blamed the crisis on the central bank’s decision to end the subsidies before the government had launched a long-awaited cash subsidy system to help the poorest households cope with rising prices. 

Central Bank Governor Riad Salameh says the subsidies have burned through the central bank’s buffers and he needs parliamentary approval to dip into the mandatory reserves that remain. That approval remains elusive even as the economic crisis gathers pace. 

Lebanon has been without a fully functioning government since the prime minister resigned a year ago in the wake of an explosion that devastated swathes of Beirut. The disaster set back efforts to win aid or revive talks with the International Monetary Fund.  

©2021 Bloomberg L.P.