Lebanese fuel prices are expected to double after the state on Saturday decided to change the course used to price oil products in an attempt to alleviate the devastating shortage that has brought Lebanon to a standstill.
As a partial reduction in fuel subsidies, the increase will mean more hardship in a country where poverty levels have risen during a two-year economic collapse that has wiped out more than 90% of the value of the Lebanese pound.
The decision was made at an emergency meeting in which the president, central bank governor and other officials took part in a fuel crisis that has left chaos in Lebanon, paralyzed basic services and triggered daily melee while people fight for fuel.
Although prices will rise, the decision did not quite raise the price of fuel pricing to the rate at which the central bank will finance its imports – a gap that the state will continue to finance until further notice.
A statement said the central bank would open an account for this purpose up to a maximum of $ 225 million by the end of September – funds to be repaid by the government in the 2022 budget.
The account was to cover an “urgent and emergency subsidy” for gasoline, heating oil and cooking gas, the bank said.
The fuel subsidy will only continue until the end of September, a ministry source said.
President Michel Aoun confirmed that the Treasury should bear the cost of the continued subsidy.
The fuel crisis worsened this month as the central bank said it could no longer finance fuel imports at heavily subsidized exchange rates and would switch to market rates.
The government protested and refused to change the official sales prices, creating a stand-out that left importers in limbo and caused supplies to dry up across the country.
Saturday’s decision marked a compromise, as official selling prices will now be based on an exchange rate of 8,000 pounds to the dollar, up from 3,900, but still well below an unofficial parallel market rate closer to 20,000 pounds.
Roads have become clogged across Lebanon as motorists have lined up for the little petrol left. Prices have risen on the black market. Some confrontations over gasoline have been fatal.
The fuel oil that drives large parts of Lebanon has also almost run out of prolonged outages.
After reflecting the concern about the consequences of the price increase, the government decided to pay social assistance to people on the public payroll corresponding to a month’s salary or pension.
While the government will adjust its fuel import rate to 8,000 pounds to the dollar, the central bank is using a rate determined by its Sayrafa platform, which stood at 16,500 pounds on Friday.
Central Bank Governor Riad Salameh told Reuters that the difference between the two interest rates would be a loss that the government would have to bear.
Critics blame the subsidy system for encouraging smuggling to Syria. This will continue all the while fuel is being sold in Lebanon below the market price, says Nassib Ghobril, chief economist at Byblos Bank. “It’s not going to solve the problem,” he said.