Lebanon’s caretaker prime minister on Friday approved a proposal to finance fuel imports at the rate of 3,900 Lebanese pounds to the dollar, instead of the previous 1,500 pound rate, amidst worsening gasoline shortages.
The weaker exchange rate, which reduces the fuel subsidy, is likely to raise gasoline prices for consumers while allowing the government to supply fuel for longer periods of time.
Lebanon is in the throes of a financial crisis described by the World Bank as one of the deepest depressions of modern history. Fuel shortages in past weeks have forced motorists to queue for hours for dribbles of gasoline.
Lebanon’s subsidy program, which was introduced last year as the country’s economic downturn resulted in harsher living conditions, includes basic products including wheat, medication, and petrol and costs around $6 billion per year.
Half of that amount is spent on fuel.
Lebanon’s central bank asked the government on Thursday to provide it with a legal basis to lend it foreign currency from its mandatory reserves to fund the subsidized fuel imports, an indication that the bank has all but run out of reserves.
Mandatory reserves, which are hard currency deposits held at the central bank by local lenders, represent a percentage of client deposits and are rarely used except in extraordinary situations and with the proper legal approval.
Lebanon’s foreign currency reserves stood at slightly more than $15 billion in March. The Central Bank has not given an updated figure since then.
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