Salameh urges Wazni to come up with plan to ration subsidies

Salameh asked Ghazi Wazni in a letter to adopt a new policy to cut waste, warning that BDL can no longer afford to use its remaining dwindling foreign currency reserves for the subsidy program

  
Lebanon's Finance Minister Ghazi Wazni attends a news conference at the presidential palace in Baabda, Lebanon February 13, 2020.

Lebanon's Finance Minister Ghazi Wazni attends a news conference at the presidential palace in Baabda, Lebanon February 13, 2020.

REUTERS/Mohamed Azakir

BEIRUT: Central Bank Gov. Riad Salameh on Wednesday reminded the caretaker finance minister that BDL cannot continue to subsidize products in the same manner, urging the government to come up with a new plan to ration subsidies and end waste.

Salameh asked Ghazi Wazni in a letter to adopt a new policy to cut waste, warning that BDL can no longer afford to use its remaining dwindling foreign currency reserves for the subsidy program.

He added that the lawyers syndicate has threatened to take BDL to court in case the remaining foreign currency reserves, which belong to commercial banks, where used to finance the bankrupt state.

Wazni was urged by Salameh to give clear and frank answers as soon as possible.

Salameh said that BDL’s subsidy program has allowed to keep inflation in recent months at 84 percent, noting that inflation would have exceeded 275 percent if it wasn’t for the support program.

On April 1, Wazni told The Daily Star that the Central Bank has around $1.5 billion left for the subsidy program and it’s not willing to continue this trend until the caretaker government comes up with a new plan to lift subsidies and issue prepaid cards for needy families.

“Central Bank Gov. Riad Salameh informed caretaker Prime Minister Hassan Diab that he can longer continue to support the subsidy program because BDL has only $1.5 billion left for this program and urged the Cabinet to come up with a plan to lift the subsidy and replace it with a prepaid card for needy families in Lebanon,” Wazni explained.

According to the minister, BDL has around $1 billion in cash and $5.5 billion in Eurobonds that are now valued at $650 million in the market.

In theory, BDL has close to $16 billion of gross foreign currency reserves and it can only use $1.5 billion of them since the 15 percent mandatory reserves have shrunk due to the fall in the customer deposits.

But there is still a debate among financial circles on whether BDL actually has $16 billion in foreign currency reserves.

Wazni added that the current Cabinet needs the approval of Parliament for allocating $1 billion a year for the prepaid card program, noting that the ministers have studied different scenarios to reduce subsidies gradually and replace them with a safety net program.

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