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BEIRUT: 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 will effectively decrease the subsidy on fuel, is expected to raise the price of gasoline for consumers but enable the government to supply fuel for a longer period 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, introduced last year as the country’s economic meltdown translated to harsher living conditions, covers basic goods such as wheat, medicine and fuel and costs around $6 billion a 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 subsidised fuel imports, an indication that the bank has all but run out of reserves.
Mandatory reserves — hard currency deposits parked by local lenders at the central bank — represent a percentage of customer deposits and are usually not drawn upon except in exceptional circumstances, with the correct legal permission.
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.