Home / news / Lebanon faces the danger of a social explosion … the depletion of cash reserves and a possible halt to subsidizing imported goods

Lebanon faces the danger of a social explosion … the depletion of cash reserves and a possible halt to subsidizing imported goods

A brief warning to the governor of the Central Bank of Lebanon, Riad Salameh, about stopping subsidizing the import of basic commodities in the coming months, was sufficient to raise the level of confusion in the markets and among citizens.

The country, which suffers the harbingers of the many accumulating crises in the economy, money, politics, and others, is seriously threatened by a rise in the prices of strategic commodities, especially flour, medicines and fuel, in addition to what is known as the food basket, in the event that the Central Bank of Lebanon stops supporting its purchase from abroad.

The main reason is that the Central Bank of Lebanon’s reserves of hard currencies will soon run out. The Central Bank currently owns about $ 19.5 billion, which is divided into two billion dollars that can be used by the Central Bank to finance the import of basic materials, in addition to the 17.5 billion that represents the mandatory reserve deposited by commercial banks with the bank. The Central Bank, and these funds represent the remainder of the Lebanese private deposits that the Central Bank cannot dispose of.

The manifestations of confusion in the markets – after safety’s warning – were manifested especially in the rush of many citizens to buy medicines, fuels and other materials, and store quantities of them in homes, which led to a shortage or depletion of some items from the market.

Support mechanisms

Many observations recorded by observers on the Commodity Support Mechanism approved by the Bank of Lebanon, and a member of the Economic and Social Council, Dr. Anis Abu Diab, believed that Lebanon adopted full support for basic commodities unconditionally according to specific mechanisms, considering that this mechanism depletes the reserves of the Central Bank.

Abu Diab explained to Al-Jazeera Net that support with this mechanism can only continue until late this year, or early February, as a maximum, considering that the situation has become dangerous.

He said that stopping fuel subsidies completely, for example, will lead to an increase in their prices between 5 or 6 times, and will affect other sectors such as furnaces, transportation and electricity, indicating that such steps will increase the demand for the US dollar in the markets, and thus the sharp decline of the national currency, and Abu Diab called the bank Central and concerned parties point to the need to protect the poor through various support mechanisms such as supply cards.

Talking about the possibility of stopping the subsidy has led to a shortage of some medicines from pharmacies (Al-Jazeera)

Explosion risk

The central bank costs an amount ranging between 600 to 700 million US dollars a month to support basic commodities, and financial expert Patrick Mardini believes that the main reason for the Lebanese problem is the high prices caused by the deterioration of the national currency exchange rate.

Mardini considered to Al-Jazeera Net that the reason for the shortage of some goods from the Lebanese market is due to the poor support mechanism provided to merchants, stressing that they store goods, re-export them or smuggle them to other countries.

He said that using the Bank of Lebanon as a whole requires a law from Parliament, and that such a move would lose the Lebanese people what was left of their money, considering this as red lines.

Mardini pointed to the need to stop what he called temporary solutions, start the process of structural reform of the economy, reduce government expenditures and address the reality of the banking sector.

For his part, Caretaker Prime Minister Hassan Diab said that any step taken by the Banque du Liban to remove subsidies on basic materials will lead to what he described as a social and catastrophic explosion on the Lebanese.

The specialists agree that the first steps required to get out of this economic tunnel is to form a rescue government that enjoys the confidence of both inside and outside the country, and adopts a reform program in order to restore confidence in the Lebanese economy, and thus the return of investments and financial flows to the markets, but these steps first need some internal consensus. Still, at least for now.

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