$4 billion in subsidies
wasted on the non-poor
Central Bank readying
citizen cards as an alternative
InfoPro Research has estimated that products subsidized by the Central Bank (BDL) and the State are consumed mostly by the non-poor, when measured in terms of money value. According to a study it has undertaken, the poor’s share is under 25 percent of the total amount spent by the public sector on subsidies.
Subsidies by the State and BDL total around $5 billion not including education and more than $300 million in healthcare services. Therefore $4 billion of subsidies are being wasted outside their intended target.
“We informed the government that we cannot finance imports from mandatory reserves,” said Riad Salameh, Governor of BDL. Out of nearly $19.5 billion in foreign currencies, $17 billion are mandatory reserves.
“Foreign trade financing is leading to the exit of money, very little of which is returning back,” he said.
Minister of Economy and Trade Raoul Nehme said that some food prices have increased instead of dropping after the subsidies were introduced. “It is going to stop,” he said.
The Central Bank has asked the Ministry of Energy to determine the country’s needs for various fuels and to which companies they should be distributed. This request aims to meet the country’s needs until the government sets a clear plan while it ensures that it has enough time to do so.
“There is an effort to rationalize the issue of the food basket, and it is no secret that exploitation and smuggling are taking place,” Salameh said.
BDL is working with the Ministry of Economy and Trade to issue a card for every Lebanese in order to support citizens and enable them to buy goods at the exchange rate of LL1,515 to the dollar. “This is the responsibility of the government, and BDL will be supportive through its technologies. The subsidy will be transferred from importers to citizens. The subsidy cards will be distributed through the banks,” Salameh said.
Subsidies include electricity, food items, medicine, as well as subsidized interest rates on housing loans.
The Central Bank is providing access to foreign currency funding for imports of basic commodities at favorable exchange rates in order to alleviate the weakening of the purchasing power of consumers.
The total amount of funds made accessible for these imports is estimated at nearly $8.7 billion per year if all related circulars and decisions are fully implemented.
BDL is also intervening on the parallel exchange market at an annual cost estimated at around $1.3 billion. This means that the total amount withdrawn from BDL’s foreign currency reserves to support the lira and the consumer purchasing power is nearly $10 billion per year.
These various subsidies and access to foreign currencies risks depleting foreign reserves if capital inflows remain weak.
Fuel imports are getting the lion’s share (nearly 67 percent) of the total funding made accessible for imports of basic commodities. Pharmaceutical imports are getting 12 percent. The funds provided for imports of medical supplies and of products included in the basket of expanded consumer goods represent five percent and 14 percent respectively of the total assuming the related circulars are fully implemented. The remaining two percent is equally divided between imports of wheat and industrial raw materials.
Access to funding is provided at an exchange rate of LL3,900 for imports of products included in the consumer basket. All remaining commodities, with the exception of industrial raw materials, are getting their funds at an exchange rate of LL1,515. Industrialists are offered access to funds denominated in foreign currencies.
The percentage of the import bill covered by BDL funding varies. It is set at 85 percent for wheat, medicine, and medical supplies, 90 percent for industrial raw materials and fuels, and 100 percent for the items included in the expanded basket of consumer goods.
Consumers are buying these basic commodities at subsidized prices through BDL’s support. The subsidy consists of the difference between the value of the funding provided at favorable exchange rates and the value of this funding at parallel market rates. The full-year subsidy for all commodities is estimated at nearly $2.4 billion in 2020 taking into consideration that the quasi full implementation of the circulars relating to industrial raw materials, medical supplies, and the basket of consumer goods started in the second half of 2020. The amount would be over $2.6 billion if the support for these products started since the beginning of the year.
Date Posted: Sep 07, 2020