Lebanon’s caretaker prime minister on Friday granted his approval for financing fuel imports at a rate higher than the official exchange rate, effectively reducing critical fuel subsidies amid worsening petrol shortages.
The decision is likely to sharply increase the price of petrol – but is expected to temporarily ease the shortage crisis in the country. Lebanon is going through an unprecedented economic and financial collapse coupled with a dangerous political crisis. The developments pose the gravest threat to the small country’s stability since the end of its civil war three decades ago.
The currency has lost more than 90 percent of its value since October 2019, trading at a record low of 16,450 Lebanese pounds to the United States dollar on the black market on Friday. The official exchange rate remains 1,507 Lebanese pounds to the US dollar.
The crisis, rooted in decades of corruption and mismanagement, has worsened in recent weeks with the central bank cutting back on financing imports with subsidised dollars. Foreign currency reserves have dropped dangerously low, from $30bn at the start of the crisis in late 2019, to nearly $15bn currently. That has prompted merchants to either raise prices or stop imports.
In the past weeks, fistfights and shootings have broken out at petrol stations as frustrated citizens lined up for hours to fill up their tanks. Electricity cuts last for much of the day, and private generators have had to turn off for several hours to ration fuel.
The decree signed by caretaker Prime Minister Hassan Diab on Friday allows the financing of fuel imports at an exchange-rate price of 3,900 Lebanese pounds instead of the official peg of 1,500 pounds.
While that may temporarily ease the fuel shortages by allowing supplies to flow in again, the move effectively raises the price of petrol and is sure to send prices of consumer goods further skyrocketing.
In a statement, Diab said he made the decision “guided by his sense of national responsibility”.
The decision “aims at securing fuel for citizens for the next three months, especially as the summer season is approaching, which will allow the increase of the US dollar flow to Lebanon with the arrival of expatriates and tourists,” the statement said.