Lebanon faces rising fuel prices as officials agree on subsidy cuts

The move is expected to increase petrol prices at pumps while easing shortages

People in Lebanon have to wait for hours in long queues to buy fuel at petrol stations. AP

Lebanese officials agreed on Saturday to effectively reduce subsidies on fuel imports, a move that is expected to increase prices at the pump while easing shortages that have affected the country.

The country's central bank last week said that it could no longer supply dollars to fuel importers at the subsidised rate of 3,900 pounds and would shift to the market rate, which according to the official Sayrafa platform stands at about 16,500 pounds per dollar.

Under the latest compromise, the government will temporarily cover half the loss – about 8,000 pounds – from its own coffers, with the remainder passed on to the consumer in higher prices.

The central bank will open an account to cover the subsidy through September, Lebanese President Michel Aoun said.

The fuel crisis has exacerbated power cuts and resulted in long queues at petrol stations during Lebanon’s worst financial meltdown in memory.

A banking crisis that erupted in late 2019 deprived millions of their life savings while the currency has collapsed, triggering triple-digit inflation and pushing more than half the population into poverty.

The government has defaulted on its international debt and failed to take measures required to gain international support.

Fuel importers say the central bank has been slow to open letters of credit at the subsidised rate, resulting in delays and queues. Shortages are also widely believed to have been exacerbated by hoarding and smuggling to Syria, where fuel fetches higher rates.

In a television appearance, Mr Aoun blamed the crisis on the central bank’s decision to end the subsidies before the government had set up a long-awaited cash subsidy system to help the poorest households cope with rising prices.

Central Bank Governor Riad Salameh says the subsidies have burnt through the central bank’s buffers and he needs parliamentary approval to dip into the mandatory reserves that remain. That approval remains elusive even as the economic crisis gathers pace.

Lebanon has been without a fully functioning government since the prime minister resigned a year ago after an explosion that devastated large parts of Beirut. The disaster set back efforts to win aid or revive talks with the International Monetary Fund.