Lebanese leaders convened an emergency meeting to decide to change the exchange rate used to price petroleum products.
After Lebanese leaders decided on Saturday to change the exchange rate used to price petroleum products to alleviate severe shortages, Lebanese fuel prices are expected to double.
It is equivalent to a partial reduction in fuel subsidies. The increase will mean that it will be more difficult for a country with soaring poverty levels. In the two-year financial crisis, the Lebanese pound has depreciated by more than 90%.
The decision was made at an emergency meeting attended by the president, central bank governor and other officials. The meeting discussed a fuel crisis that plunged Lebanon into chaos, paralyzed basic services, and people scrambled to buy fuel and caused daily scuffles. .
Although prices will rise, the decision does not fully raise the fuel pricing exchange rate to the exchange rate at which the central bank finances its imports—for now, the state will continue to fund this gap.
A statement stated that the central bank will open an account of up to $225 million for this purpose until the end of September-the government will have to repay this money in the 2022 budget.
The bank said the account will be used to pay for “emergency and exception subsidies” for gasoline, fuel oil and cooking gas.
A source in the minister stated that fuel subsidies will only last until the end of September.
President Michel Aoun confirmed that the Treasury Department will bear the cost of continuing subsidies.
The fuel crisis worsened this month, when the central bank stated that it could no longer finance fuel imports at a highly subsidized exchange rate and would switch to market interest rates.
The government’s opposition and refusal to change the official selling price created a stalemate, put importers into trouble, and caused supplies across the country to dry up.
Saturday’s decision marked a compromise, as the official selling price will now be based on an exchange rate of 8,000 pounds to the US dollar, which is higher than 3,900 pounds, but still far below the unofficial parallel market exchange rate of close to 20,000 pounds.
As motorists lined up for the remaining small amount of gasoline, roads across Lebanon have been blocked. Prices on the black market have soared. Some confrontations over gasoline have become deadly.
The fuel oil that powers most of Lebanon has also been almost exhausted, leading to long-term power outages.
Out of concerns about the impact of rising prices, the government decided to pay emergency social assistance equivalent to one month’s salary or pension to people on the public payroll.
Although the government adjusted its fuel import exchange rate to 8,000 pounds to 1 US dollar, the central bank used the exchange rate determined by the Sayrafa platform, which was 16,500 pounds on Friday.
Central Bank Governor Riad Salame told Reuters that the difference between the two interest rates would be a loss to the government.
Critics accuse the subsidy system of encouraging smuggling into Syria. Nassib Ghobril, chief economist of Byblos Bank, said that this situation will continue during the period when Lebanon is selling fuel at below market prices. “It won’t solve the problem,” he said.