Lebanon’s central bank said on Monday it would open credit lines to import fuel at 3,900 Lebanese pounds to the dollar, a weaker rate than previously offered that effectively raises the costs for ordinary Lebanese amid a crippling economic crisis.
Under a subsidy program, the central bank had been using 1,500 pounds to the dollar, the official rate used for all transactions until the crisis that erupted in late 2019 precipitated a currency collapse. The street rate for the pound is now over 17,000 to the dollar.
Lebanon’s caretaker prime minister had on Friday approved a proposal to finance the imports at the new rate amid worsening fuel shortages.
Lebanon is in the throes of a deep financial crisis dubbed by the World Bank as one of the worst depressions in modern times. Basic goods such as medicine and fuel are running short as financing dries up.
Motorists in the past few weeks have had to queue for hours at gas stations to get barely any fuel, leading to violence in which gunshots were fired in some instances.
The weaker exchange rate, which will effectively decrease the subsidy on fuel, is expected to raise the price of gasoline for consumers but enable the government to supply fuel for a longer period of time.
The central bank had asked the government to provide it with the correct legal permission to dip into its mandatory reserves in order to provide financing for fuel, an indication that the bank has all but run out of foreign reserves.
Mandatory reserves - hard currency deposits parked by local lenders at the central bank - represent a percentage of customer deposits and are usually not drawn upon other than in exceptional circumstances.
Lebanon’s subsidy program, which covers wheat, medicine and fuel, costs it around $6 billion a year, half of which goes to fuel.