Published on June 30, 2021

Hasan DIAB, the Lebanese Interim Prime Minister approved a plan to cut crucial fuel subsidies. This decision could unleash a “social catastrophe” as the economy continues to crumble, said observers.

On June 25, 2021, DIAB said in a statement that the decree will finance fuel imports at a rate higher than the official exchange rate aimed to secure a supply of fuel to last the next three months.

“Especially as we approach the summer season, that will increase the value of hard currencies coming into Lebanon with tourists and ex-pats arriving”, said DIAB.

Lebanon is witnessing shortages in medicines, fuel, and other basic goods, with long lines forming outside petrol stations.

The country has been grappling with an economic and financial crisis that has seen the local currency collapse and banks clamp down on withdrawals and money transfers.

On June 11, 2021, Walid DIB, the head of the fuel companies’ workers and users syndicate, warned that the “oil and gas sector is nearing collapse next week when the companies’ reserves run out.” He added at the time that: “It is weird how officials and decision-makers lack interest in that, and no decisions are taken by those responsible for the file in order to put an end to the crisis.”

The decision to cut the fuel subsidies was made last week after a meeting between President Michel AOUN, central bank governor Riad SALAMEH, interim energy minister Raymond GHAJAR and interim finance minister Ghazi WAZNI at Baabda Palace.

DIAB, who has opposed lifting subsidies without an alternative programme in place, was not at the meeting in Baabda Palace. He initially opposed the subsidy rollback policy but changed his mind after a joint parliamentary committee endorsed a draft law for a targeted cash card programme on Thursday. The cash cards would replace the country’s expensive subsidies on wheat, fuel, and medicine.

Parliament is set to vote on the law later this week. The cash cards would replace the country’s subsidies, and provide up to $137 monthly to about 500,000 financially vulnerable families.

Jad CHAABAN, economist and professor of economics at the American University of Beirut, thinks that cutting back subsidies is a huge risk right now. This decision will deteriorate the standard of living of the population that could create new social tensions.

“If you double the price (of gasoline and fuel), then you double the price of all the products and services they need”, CHAABAN said, fearing further tensions. “It is now a matter of national security.”

International organizations and economists have criticized the programme’s effectiveness.

The International Labor Organization and UNICEF estimate 80% of subsidies benefit the country’s wealthiest 50%, as they have greater buying power. Smugglers have also benefitted from the programme by selling subsidized goods for a greater profit outside of the country instead, notably in neighboring Syria.

This article was edited using the data from Aljazeera.com, Algulf.net, Insider-voice.com, and Arabnews.com.