Home Finance specialist Lebanon implements ration card program as economic crisis deepens

Lebanon implements ration card program as economic crisis deepens

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The Lebanese parliament approved a law on ration cards on June 30, injecting $ 556 million in exceptional credit in the form of cash assistance to support the most vulnerable families, replacing the current subsidy system. The ration card program aims to support approximately 500,000 families through a cash payment of an average of $ 93 per month for one year.

The Lebanese population is struggling to survive in an economic collapse, with the local currency depreciating by more than 90% that has trapped 55% of the population in poverty, according to a report by the United Nations Economic and Social Commission for Western Asia.

In the wake of the 2019 economic crisis, the central bank offered importers and traders a favorable exchange rate to purchase fuel, wheat and medicine, as well as a food basket consisting of around 350 items, including coffee, cocoa powder and nuts.

Due to the crisis and a shortage of US dollar liquidity, the central bank no longer has reserves available for subsidies, which cost $ 6 billion per year. Most subsidies have decreased or ceased, and the bank has raised the exchange rate for fuel to the discount rate of 3,900 Lebanese pounds, while wheat and medicines are still subsidized at the official rate of 1,510 Lebanese pounds.

However, the unstoppable fall of the Lebanese pound triggered a chain reaction that drove Lebanon into an endemic collapse. Fuel prices skyrocketed to 70,100 Lebanese pounds, while large and small packages of bread rose 22.74% and 17.56%, respectively.

As a result, fear of losing subsidies has led to very long queues and battles for fuel at service stations amid looming shortages in recent weeks.

Leila Dagher, associate professor of economics at the American University of Beirut and senior researcher at the Lebanese Center for Policy Studies, told Al-Monitor that replacing the grants program with unconditional cash transfers had been proposed for the first time by the Ministry of Economy and Trade in September. 2020.

“If this had been done at the time, the program could have been funded by foreign exchange reserves exceeding the 15% minimum reserve requirement, which has now been lowered to 14%. Unfortunately, this is no longer an option, and the remaining reserve requirements should be banned from any entity or program, ”Dagher said, adding that his point of view expressed in this article does not represent any Lebanese government institution with which it is associated.

The interim government has yet to set a clear roadmap to enact a ration card program, as a commission chaired by interim prime minister Hassa Diab and other ministries involved in the law will make decisions based on it. consultations with international organizations and governments of other nations.

Nasser Yassin, professor of politics and planning at the American University of Beirut, told Al-Monitor the ration card program is not enough because there is a lack of vision on how to get out of the country of the crisis. “The government is working on criteria to provide support through a ration card program by excluding certain families based on their income, lifestyle and availability in their bank accounts. About 25% of the population can be excluded [from] the program. However, this should be part of a comprehensive recovery plan for Lebanon, backed by foreign aid, ”Yassin said.

The ration card program is reportedly costing around $ 1.2 billion a year, but it is not clear where the government could find the funds to draw on. Acting Finance Minister Ghazi Wazni announced that the program could be funded by the International Monetary Fund for $ 900 million. Meanwhile, the government would allocate $ 300 million received by the World Bank, initially intended to be used for public transport projects.

Contacted by Al-Monitor, Haneen Sayed, Senior Social Protection Specialist at the World Bank (Mashreq Country), said: The World Bank would consider reallocating the funds released as additional funding only to the safety net project Social Emergency (ESSN), which is a poverty reduction program targeting extremely poor Lebanese households. This would be conditional on the satisfactory implementation of the ESSN and verification by an independent third party that cash transfers are made in US dollars to qualifying extremely poor households.

The Lebanese parliament approved a loan of $ 246 million from the World Bank in March 2021 to finance ESSN for more than 160,000 households monthly on prepaid cards for one year, which is the same ratio as the law on recently approved ration cards. For this reason, Dagher believes the top priority is to work tirelessly to get the World Bank-funded ESSN program going. “There is no need to reinvent the wheel at a time when the purchasing power of potential social safety net beneficiaries is deteriorating day by day, if not hourly,” Dagher said.

Although the government must enforce the law, the lack of clarity and transparency regarding the ration card program and endemic mistrust of the political system have left many skeptical of its feasibility. “The government’s ration card program is the simplest option for giving people money and saving the political system time. As Lebanon is not a fully functioning democracy, politicians use it as an expedient. However, this is not the Lebanese exception, as it also happens in other countries, ”Yassin said.

Lebanese political parties anticipated the strategy adopted by the government by providing direct support to the most vulnerable families. Since April, several political parties, including Hezbollah, the Lebanese Forces and the Free Patriotic Movement, have promoted several initiatives to help its supporters, including Hezbollah’s Al-Sajjad cards distributed to buy basic necessities.

Although a ration card program may help needy families for a short time, weak communication and lack of transparency of Lebanese institutions may not solve the insufferable increase in the prices of all commodities in one. impending subsidy lifting system.


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