IMF Says Lebanon Should Target Subsidies at Those Most in Need as Reserves Dwindle

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IMF Says Lebanon Should Target Subsidies at Those Most in Need as Reserves Dwindle

Lebanon should revamp its subsidy system to reach those most in need and make better use of its rapidly dwindling foreign currency reserves, the IMF said Monday.

Crushed by a mountain of debt, Lebanon is facing its worst economic crisis since its 1975-1990 civil war. As prices soar, many Lebanese have been plunged into poverty and are increasingly reliant on subsidies, but the state is fast runnning out of cash.

"We encourage Lebanon to moving into a more targeted subsidy system that will allow them to reach those who are the most affected and also allow them to have a better utilisation of their foreign currencies," Jihad Azour, Director of the Middle East and Central Asia Department at the IMF told Reuters.

Lebanon has spent $4 billion so far in 2020 on subsidising food, medicine, flour and wheat imports, the caretaker Prime Minister Hassan Diab said earlier this month, and warned that scrapping all subsidies across the board would cause a social implosion.

The central bank has said it cannot finance trade indefinitely as reserves dwindle, but has not given a timeframe.

An official source told Reuters on Oct. 9 that Lebanon has about $1.8 billion of its foreign reserves left for subsidising key imports - wheat, fuel, medicine - and a list of basic foods, which could last about six months if support for some goods was cut.

Azour's comments come after wrangling Lebanese politicians failed to agree on a new government. Parliamentary consultations to pick a new prime minister have been postponed from last week to Thursday.

The IMF has called on Lebanese leaders to come up with a credible and comprehensive reform agenda. Last week it predicted Lebanon's economy will shrink by 25% this year, 13 percentage points more than it said in April.

The fund said Monday it estimated consumer price inflation at 85.5% this year, up from April's estimate of 17%, while its estimate for the central government fiscal deficit widened to 16.5% of GDP from 15.3% in April.

Source: Reuters