Lebanese leaders hold emergency meeting, decide to change the exchange rate used to price petroleum products.
Fuel prices in Lebanon are expected to double after the country’s leaders decided on Saturday to change the exchange rate used to price petroleum products in a bid to ease crippling shortages.
Amounting to a partial reduction in fuel subsidies, the rise will mean more hardship in a country where poverty levels have soared during a two-year-long financial meltdown that has wiped more than 90 percent off the value of the Lebanese pound.
The decision was made at an emergency meeting attended by the president, central bank governor and other officials over a fuel crisis that has left Lebanon in chaos, paralysing basic services and sparking daily melees as people scramble for fuel.
Though prices will rise, the decision did not fully lift the exchange rate for pricing fuel to the exchange rate at which the central bank will finance its import – a gap which the state will continue to finance, for now.
A statement said the central bank will open an account to for that purpose up to a maximum of $225m until the end of September – funds the government will have to pay back in the 2022 budget.
The account was to cover an “urgent and exception subsidy” for gasoline, fuel oil and cooking gas, the bank said.
The fuel subsidy would only continue until the end of September, a ministerial source said.
President Michel Aoun confirmed the treasury would bear the cost of the continued subsidy.
The fuel crisis worsened this month when the central bank said it could no longer finance fuel imports at heavily subsidised exchange rates and would switch to market rates.
The government objected, refusing to change official selling prices, creating a standoff that left importers in limbo and caused supplies to dry up across the country.
Saturday’s decision marked a compromise as official selling prices will now be based on an exchange rate of 8,000 pounds to the dollar, up from 3,900, but still well below an unofficial parallel market rate closer to 20,000 pounds.
Roads have been clogged across Lebanon as motorists have queued for the little gasoline left. Prices have soared on the black market. Some confrontations over gasoline have turned deadly.
The fuel oil that powers much of Lebanon has also nearly run out, leading to lengthy blackouts.
Reflecting concern about the impact of the price rise, the government decided to pay emergency social assistance to people on the public payroll equal to one month’s pay or pension.
While the government will adjust its fuel import exchange rate to 8,000 pounds to the dollar, the central bank use a rate determined by its Sayrafa platform which stood at 16,500 pounds on Friday.
Central bank governor Riad Salameh told Reuters the difference between the two rates would be a loss to be carried by the government.
Critics blame the subsidy system for encouraging smuggling to Syria. This will continue all the while fuel is sold in Lebanon below market price, said Nassib Ghobril, chief economist at Byblos Bank. “It is not going to solve the problem,” he said.