‘Card for the hungry’: Lebanon’s Prime Minister intends to reduce family aid by $3.8 billion.

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Caretaker Prime Minister Hassan Diab of Lebanon says the legislature and the central bank must find a way for three-quarters of the people – those most in need – to purchase food with new ration cards, at an expense to the state of $1.2 billion per year, before cutting subsidies for essential commodities (medicine, wheat and other basic food products, and fuel) for all.

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The government currently spends some $5 billion a year, approximately 71% of its budget, to underwrite the basic goods for Lebanese households, but the state is running out of ways to pay for it.

For an economy that had been recovering from severe depression and high levels of debt long before the pandemic, the state found it difficult to continue financing the subsidies at existing levels. The Lebanese lira, also known as the pound, plummeted to its lowest level ever in early March, trading at about 10,000 to the dollar.

According to Moustafa Assad, a freelance researcher on banknote issuances in Lebanon, the drive to eliminate subsidies came too late.

“It was necessary to lift all subsidies, but we are eight years too late. Any government should have realized that Lebanon is being slowly bled of its resources, but none had the courage to take action,” he told The Media Line. “Today we are at the end of our financial sources, of foreign funds, and we have categorically spent the last pennies in the coffers of BDL [Banque du Liban, the central bank] and consequently lost all depositors their savings.”

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He added, though, that few options remain for righting Lebanon’s economic course and that the situation could worsen for the average citizen if these subsidies are lifted.

“Within months of lifting subsidies, the value of the lira will crash again, and prices on the street will rocket to unprecedented levels, with people unable to afford even the most basic of needs,” Assad said.

“We put ourselves into a corner voluntarily in this scenario and there is little we can do in a short period of time. Allowing a group of politically oriented amateurs with zero economic capabilities to run a country led us to bankruptcy,” he added.

Even with the proposed spending cuts, it is not clear how Beirut will be able to meet its commitments to the poor.

“Today we are talking about a ‘Card for the Starved’: What a tragic way to deal with an economic crisis. It gets [even worse] when we realize that we can’t fund even that and have to rely on international aid to feed the new echelons of the poor and needy,” Assad said.

Diab appears to be more open to draining the country’s financial reserves to pay for the ration cards, noting that central bank reserves were drawn down to $1 billion in 2002.

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He ruled out putting more currency into circulation.

“On the other hand, I am against the option of printing money to fund the ration card, because printing more money will not only strain our national currency’s exchange rate but also lead to hyperinflation,” the prime minister said.

Sami Zoughaib, a Beirut-based economist, said spending what is left of the central bank’s assets is terrible policy.

“Depleting the reserves would mean that Lebanon would be unable to spend hard currency on anything. The lira would be worthless and it would be catastrophic,” he told The Media Line.

Zoughaib added, though, that some of the reserves should be used.

“Spending the reserves should have two objectives: to trigger economic activity through investing it in productive sectors and using it for urgent interventions to support the vulnerable population,” he said.

Also up in the air regarding the state assistance program is how much money each family would receive, but according to proposals, it would be capped at approximately the equivalent of $1,990 annually for a four-person household.

“If the lifting of subsidies happens without an alternative present, people will literally starve,” Zoughaib said, noting that 55% of the population lives under the poverty line, with around 30% in extreme poverty.

He said that the government was long overdue in changing how it underwrites goods and suggested a different way to provide a safety net for the Lebanese people.

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“This should be based on a national social protection strategy that guarantees the livelihood of people through activating job creation and guaranteeing basic services such as healthcare and education,” Zoughaib said. “Direct cash transfers are essential in the short term, but not without other policies that offer a holistic framework for social protections.”

This would be funded by foreign donors or through the International Monetary Fund, which has refused to provide any aid to Lebanon until it has a functioning, non-corrupt government.

“Any other solution would be counterproductive at best,” Zoughaib added.

When it comes to economic improvement for the country, Assad is not optimistic.

“The spiral of economic collapse needs men in power with vision and education, relations, determination and charisma, a thing we totally lack and have always lacked,” he said.

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