Three more months. That’s the amount of time remaining during which the Lebanese Central Bank (BDL) will continue to subsidize wheat, fuel, and medicine. Once the subsidies are lifted, the price of the aforementioned commodities will skyrocket as they become contingent on the rate of lira on the black market, which currently stands at roughly 7,000 L.L. With the country’s economic crisis continually getting worse and its struggles recovering from the August 4 blast, BDL’s decision is a strong blow to the Lebanese people.
According to Reuters, the central bank informed the government on its decision to end the subsidies in order to prevent its reserves from falling below $17.5 billion. Apparently, BDL can only use $2.3 billion of the remaining foreign currency reserves in order to continue subsidizing these necessities. This would mean spending roughly $700 million per month for the next 3 months. Governor of the central bank, Riad Salameh, stated that the remaining foreign currency reserves belong to depositors and that is why he chooses not to touch them.
Some international financial institutions, such as the International Monetary Fund (IMF), along with several economists have been calling for the removal of these subsidies and instead diverting the funds towards creating a safety net that will continue to sustain poor families in the long run. Professor of finance and economics at NDU, Louis Hobeika, stated that giving poor families cash directly is less costly and more effective. According to the Economic and Social Commission for Western Asia (ESCWA), the headcount poverty rate has risen from 28% to 55.3% from 2019 to May 2020, that would mean around 2.7 million people in poverty, assuming a population size of 4.8 million. Extreme poverty, on the other hand, has risen from 8.2% to 23.2% and is likely to continue increasing as a result of the continually worsening economic crisis and all the economic implications carried by COVID-19. Removing the subsidies and creating a safety net is easier said than done, but with the central bank having no intention to go through with such a decision, almost half the population is left to struggle with the incompetence of its own government. Megaphone News pointed out that $4.46 billion were spent from the reserves since the beginning of the year, not on subsidies. The inability of the government to carry out concrete reforms will further plague the state as donors continually refuse to help the government unless they see change. In 2018, donors pledged over $11 billion to Lebanon and the only change seen by the country was its cabinet.
In regards to the economic situation as a whole, there are many ideas floating around, one of which relies on banks asking depositors who transferred more than $500,000 aboard as of July 1, 2017, to bring back said funds in order to be placed in a special account, whereby of 15% of the transferred amount will be frozen for 5 years. If the depositors are “politically exposed persons,” the amount is raised to 30%. Despite Salameh calling such reforms “necessary”, there is yet to be any plan on what incentives the central bank would promote in order to get depositors to transfer back their money. While carrying out any sort of reforms is necessary towards improving the situation of the country, time is of the essence for Lebanon’s most vulnerable families — it is paramount to dedicate discourse towards creating a safety net for these people to fall back on once the price of basic necessities skyrockets.
The economic crisis that Lebanon is facing has completely changed, and will continue to change, the socio-economic landscape of the country. The Lebanese government shall marginalize a large portion of the population from receiving basic needs as it cuts subsidies–continuing to starve and kill the people. While there may not be a legitimate solution for what is to come, and many unanswered questions are still looming, one thing remains certain: the tragedy that is about to ensue is the product of an economic crisis that was manufactured by corrupt and incompetent officials and politicians. Eventually, in three months, we are likely to witness the actualization of Rousseau’s famous words: “when the people shall have nothing more to eat, they will eat the rich.”