This move may push up gasoline prices, but it is expected to temporarily alleviate the shortage crisis.
The caretaker prime minister of Lebanon on Friday approved the import of fuel at an interest rate higher than the official exchange rate, effectively reducing key fuel subsidies as the gasoline shortage worsened.
The decision may significantly increase gasoline prices, but it is expected to temporarily alleviate the country’s shortage crisis. Lebanon is experiencing an unprecedented economic and financial collapse and a dangerous political crisis. Developments have posed the most serious threat to the stability of this small country since the end of the civil war 30 years ago.
Since October 2019, the currency has depreciated by more than 90%, and it was traded on the black market on Friday at a record low of 16,450 Lebanese pound against the U.S. dollar. The official exchange rate remains at 1,507 Lebanese pound to U.S. dollar.
This crisis, stemming from decades of corruption and mismanagement, has worsened in recent weeks as the central bank reduced the use of subsidized dollars to finance imports. Foreign exchange reserves have fallen to dangerously low levels, from 30 billion U.S. dollars at the beginning of the crisis at the end of 2019 to nearly 15 billion U.S. dollars today. This has prompted businesses to either increase prices or stop imports.
In the past few weeks, fighting and shooting broke out at gas stations, and frustrated citizens lined up for several hours to fill up the gas tanks. The power outage lasted most of the day, and private generators had to be shut down for several hours to ration fuel.
The decree signed by the caretaker Prime Minister Hassan Diab on Friday allows the financing of fuel imports at an exchange rate of 3,900 Lebanese pounds instead of the official exchange rate of 1,500 pounds.
Although this may temporarily alleviate the fuel shortage by allowing the supply to flow in again, the move has effectively raised gasoline prices and will certainly lead to further spikes in consumer product prices.
Diab said in a statement that he made this decision “under the guidance of national responsibility.”
The statement stated that the decision “is designed to provide fuel for citizens in the next three months, especially as the summer is approaching, which will allow the increase in the inflow of dollars into Lebanon with the arrival of foreigners and tourists.”