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Lebanon central bank can keep subsidies for only two more months

December 2, 2020 at 8:28 am

The Central Bank of Lebanon [Karan Jain/Flickr]

Lebanon’s central bank can keep basic subsidies for only two more months and the state should come up with a plan, Governor Riad Salameh said on Tuesday as the country’s financial crisis spirals.

He told Saudi’s al-Hadath TV the central bank would commit to providing Lebanese government accounts for a forensic audit, but that disclosing those of domestic banks would require a change in legislation.

Lebanon is one long tale of disaster and crisis - Cartoon [Sabaaneh/MiddleEastMonitor]

Lebanon is one long tale of disaster and crisis – Cartoon [Sabaaneh/MiddleEastMonitor]

A meltdown without precedent has crashed Lebanon’s currency, paralysed banks, and sent inflation soaring.

As dollar inflows dried up, the central bank has used dwindling reserves to provide foreign currency for key imports – fuel, wheat, and medicine – and some basic goods.

Suggestions of a looming end to subsidies have triggered panic buying and fears of rising hunger. The crisis had made over half the population poor.

“We have the capacity to keep the subsidies for two months,” Salameh said on Tuesday.

“This question should also be asked of those in charge of the country,” he said about the subsidies. He added that lawmakers would meet this week to start drafting a plan.

Foreign donors have demanded a forensic audit of the central bank among key reforms before helping Lebanon out of the crisis, rooted in decades of waste and graft.

But restructuring consultancy Alvarez & Marsal said it withdrew from the audit because it had not received information required. Some Lebanese officials have accused Salameh of using bank secrecy laws to justify withholding information.

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Salameh said he was for an audit but local banks’ accounts could not be revealed without some laws being amended.

The central bank would seek to reorganize and sell Lebanese banks that fail to raise capital, he said. He has said those that cannot increase their capital by 20% by the end of February 2021 will have to leave the market.

In response to a question about the possibility of US sanctions, Salameh said the bank was doing everything necessary within the law and “in constant coordination with the US Treasury.”

Washington has in recent months sanctioned Lebanese officials on charges of corruption or enabling Iran-backed Hezbollah.