The bank said while it had spent more than $800 million on fuel in the last month and the bill for medicines had multiplied, those goods were still absent from the open market and were being sold at prices that exceed their value.
The Lebanese central bank has said it told the government a year ago that it would need new legislation to use a mandatory currency reserve, after announcing an effective end to the subsidies it has been providing for fuel imports.
The central bank said that, while it had spent more than $800 million on fuel in the last month and the bill for medicines had multiplied, those goods were still absent from the open market, and being sold at prices that exceed their value.
"This proves the necessity of moving from subsidising commodities, which benefits traders and monopolists, to supporting citizens directly," the bank said.
#Lebanon It seems that the Southern highway leading from Saida to Beirut is currently blocked, I am told it’s people blocking the highway either with their cars or on foot due to the fuel shortage and last’s night decision to lift subsidies off fuel. pic.twitter.com/3FlKVD1nod— Luna Safwan - لونا صفوان (@LunaSafwan) August 12, 2021
Aoun summons bank governor
Lebanese President Michel Aoun summoned central bank governor Riad Salameh on Thursday as the caretaker government said his decision to effectively lift fuel subsidies contravened its policies and was against the law.
A loss of fuel subsidies would open a new phase in the financial crisis that has cut the value of Lebanon's currency by more than 90 percent since 2019 and thrown more than half the population into poverty.
Since the onset of the crisis, the central bank had been effectively subsidising fuel by using its dollar reserves to finance imports at exchange rates well below the rates on the parallel market, draining the reserve.
In a statement, the prime minister's office said Salameh's move went against a law issued by parliament in June regarding the issuance of prepaid cash cards to the poor, financing for which has yet to be put in place.
Gebran Bassil, who heads the party founded by Aoun and is his son-in-law, called the move a sudden and unilateral step that contravened a government decision to lift subsidies gradually.
"The governor is the governor of the central bank, not the governor of the Lebanese republic, and it is not for him to take strategic and fateful decisions that touch the security of the country and its social security," Bassil said in a televised broadcast.
Writing on Twitter, he called the move "a new coup" and called on his party and people in general to prepare to mobilise.
A minister in the caretaker cabinet, Imad Hoballah, said the decision was irresponsible and should have been taken in agreement with the government, broadcaster MTV reported.
Hello darkness.Part of Lebanon’s capital #Beirut in the dark caused by fuel shortages #Lebanon is grappling with its worst economic crisis since the 1975-1990/war, with deteriorating living conditions sparking widespread protests and plunging almost half/population int2 poverty. pic.twitter.com/g0bmH1vuIy— patrickbaz (@Patrick_Baz) July 28, 2020
Announcing its decision late on Wednesday, the central bank said it would offer credit lines for fuel imports based on the market price for the Lebanese pound from Thursday.
No new fuel prices were issued on Thursday by the energy ministry, which typically sets them each Wednesday.
Unsubsidised, the price of 95 octane gasoline was projected at more than four times its previous price in a schedule reported by a Lebanese broadcaster on Wednesday.
While sharply higher prices would make fuel less affordable for the growing number of Lebanese poor, some economists say crippling fuel shortages should be alleviated for those who can pay by removing the incentive for smuggling and hoarding.
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.
The ruling elite has failed to chart a course out of the crisis, Lebanon's worst since the 1975-90 civil war, even as supplies of fuel and medicine have run out.
They have been at loggerheads over how to parcel out seats in a new government to replace the one that quit in the wake of last year's catastrophic Beirut port explosion.
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.