In light of severe gasoline shortages in the country, the President of the Republic convened with the Ministers of Finance and Energy and the Governor of BDL on 24/6/2021, and agreed to use commercial banks’ required reserves at BDL to continue subsidizing 85% of the country’s dollar imports of petroleum products, but at an exchange rate of 3,900 LBP per dollar instead of the official rate of 1,500.
After the meeting, BDL issued a statement in the afternoon that it is willing to provide the subsidy to the government as a loan in accordance with article 91 of the Code of Money and Credit, but the government has to pay back these loans as stipulated in articles 93 and 94 of the Code of Money and Credit. More importantly, a legal framework has to be put in place to allow BDL to use required reserves for that purpose. In addition, BDL urged the formation of a new government to take the necessary reforms and lead the economy back to recovery, something which will benefit the people directly and bring an end to subsidies.
As a result, the care-taking government signed today into the legal framework that provides the cover to BDL to use required reserves for subsidies, at least for a period of three months.
Interesting to note that BDL had evaded in the past to dipping into required reserves, deciding instead to lower the required reserve ratio by 1% (from 15% to 14%) so as to pay depositors per Circular 158. But this new legal framework allows required reserves to be used directly to fund subsidies and, most likely, the “financing card” for households that parliament will vote on soon. And now with the barrier removed, these measures will lead to un-stoppable hemorrhages in BDL foreign reserves (which currently stand at around $15 billion in ready currency) and, as scary, further depreciations in the exchange rate. And all this is happening at a time when the most sensible and dignified alternative is to form a government that tries to take the country out of the misery it is in and put a stop to these economically wasteful measures!