Economy

Lebanon’s foreign reserves reach ‘red line’: Central bank chief

Central bank halted fuel subsidies that have drained Lebanon’s reserves

By Stephanie Rady   | 14.08.2021
Lebanon’s foreign reserves reach ‘red line’: Central bank chief

BEIRUT, Lebanon

Lebanon’s foreign reserves have reached a “red line”, the country’s central bank governor warned on Saturday.

"Everyone was aware of the decision to lift fuel subsidies, starting from the government to the parliament and up to the presidency,” Riad Salameh said in an interview with Free Lebanon Radio.

On Wednesday, the central bank halted fuel subsidies that have drained the country’s foreign reserves.

On Thursday, caretaker Prime Minister Hassan Diab rejected the bank’s decision, saying it was “against the law and does not take into account the reality of the deep living and social crisis."

A foreign currency shortage and devaluation of the currency have caused the central bank's dollar reserves to dwindle from an average of $38 billion at the end of 2019 to its current average of $16 billion.

Official estimates put the cost of the Lebanese subsidy program for basic materials at about $6 billion annually, half of which goes to subsidize fuel.

The bank has supported fuel imports by securing the dollar for importers at an exchange rate of 3,900 pounds ($2.59) per dollar, while its exchange rate in the parallel market in recent days topped 20,000 pounds ($13.30).

Immediately after Salameh announced the lifting of fuel subsidies, hundreds of Lebanese took to the streets to express their anger against the decision, blocking several main roads.

Salameh warned that the country’s foreign reserves were insufficient and called for either passing legislation to allow the central bank to use the mandatory reserve to fund the subsidies or “form a government with a vision that begins with the reform project in the country."

On July 26, Najib Mikati received support from 72 out of 128 parliamentarians to form a new government,

Lebanon has been unable to form a new administration since the resignation of Diab's cabinet on Aug. 10, 2020, six days after the massive Beirut port blast.

The Arab country is facing a severe economic crisis, with the local currency losing nearly all of its value against the dollar, and streets witnessing massive protests and rallies.

Observers say lifting fuel subsidies would raise the prices of other goods and services that depend on fuel to generate electricity for production such as factories and private bakeries.

*Writing by Ibrahim Mukhtar in Ankara

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