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Fuel subsidies, long seen as a lifeboat for the country’s growing legions of impoverished people, were halted.
While new fuel prices have not yet been set, experts expect them to quadruple, ultimately causing an inflationary shock in a country that has seen its poverty levels soar, its medicines all but disappear from pharmacies, and its electricity supplies more than halved.
“This is obviously going to ripple through the whole economy,” Heiko Wimmen, Iraq, Syria and Lebanon director at Crisis Group, told CNN. “For a large part of the population, electricity will become a luxury. Driving your car will become a luxury, too. Transportation will become a luxury.”
As a financial tailspin burned through the country’s foreign exchange reserves, officials warned that the subsidies, which had protected the population from the full effects of the crisis, were unsustainable. But poor management of the financial collapse, which the World Bank has dubbed a “deliberate depression,” means the country is less prepared to handle the consequences of liberalization of fuel prices than ever before.
For days, the announcement was widely believed to be imminent. The Central Bank had suspended lines of credit to fuel importers and local reporting, citing unnamed officials, said that the subsidies would follow.
On Thursday, the Central Bank issued a statement standing by its decision and saying that the subsidies were being exploited by businesses. Around $800 million were paid in import subsidies in July alone, yet fuel shortages were still rampant. There is a widely held belief that importers either stockpiled subsidized fuel or smuggled it out of Lebanon to be sold at market prices elsewhere, hence making a massive profit.
The ripple effects of the decision came before the decision itself. Petrol stations across the country shuttered. Highways became clogged by long lines that snaked out of the few petrol pumps that remained open. Many bakeries have closed. Factories, including one that supplies the majority of Lebanon’s intravenous lines to hospitals, closed. They blamed diesel exhaustion.
Several towns and neighborhoods, already suffering from the effects of long outages from state electricity, lost access to diesel, which is needed to power backup generators, and were plunged into darkness. Many businesses are also considering closing shop, or have closed already, due to power cuts.
The effects of the Central Bank decision are only expected to worsen, and become more cross-cutting, causing disruptions to the supply of even more necessities, such as bottled water (the country does not have potable water).
“Drinking water is all about transportation. If you don’t have diesel, you can’t get water from the mountain to the coast,” said Wimmen.
“For all merchandise that have a significant transportation element in them, prices will have to explode. The large majority of Lebanese … will get drastically poorer.”
There are also threats to food safety. Households, restaurants and supermarkets across the country are throwing out produce that has rotted due to a lack of refrigeration. Food poisoning cases have spiked, according to local media. Earlier this week, gas importers warned of impending shortages in the product, prompting lines outside stores selling cooking gas.
Overwhelmingly the outlook for Lebanon is bleak, with few predicting the possibility of an economic or political breakthrough before the country’s parliamentary elections, scheduled for next year. In the absence of significant political change, experts say, the downward spiral will only continue.
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