Lebanon Must Ration Subsidies before Reserves Run out, Says Finance Minister

A customer pushes her trolley next to near empty shelves after people hoarded food as authorities are discussing the latest measures to implement to curb the spread of the coronavirus disease (COVID-19), in Beirut, Lebanon, January 11, 2021. (Reuters)
A customer pushes her trolley next to near empty shelves after people hoarded food as authorities are discussing the latest measures to implement to curb the spread of the coronavirus disease (COVID-19), in Beirut, Lebanon, January 11, 2021. (Reuters)
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Lebanon Must Ration Subsidies before Reserves Run out, Says Finance Minister

A customer pushes her trolley next to near empty shelves after people hoarded food as authorities are discussing the latest measures to implement to curb the spread of the coronavirus disease (COVID-19), in Beirut, Lebanon, January 11, 2021. (Reuters)
A customer pushes her trolley next to near empty shelves after people hoarded food as authorities are discussing the latest measures to implement to curb the spread of the coronavirus disease (COVID-19), in Beirut, Lebanon, January 11, 2021. (Reuters)

Lebanon will run out of money to fund basic imports by the end of May and delays in launching a plan to reduce subsidies are costing $500 million a month, the caretaker finance minister, Ghazi Wazni, said.

As Lebanon’s economy crumbles, the central bank has asked the caretaker cabinet to decide how to gradually lift subsidies to ration remaining foreign currency reserves, Wazni told Reuters on Thursday.

“The government must speed this up. The cost of wasting time is very high. With every delay, it becomes higher,” he said.

Lebanon’s financial meltdown is fueling hunger and unrest in the country’s gravest crisis since its 1975-1990 civil war.

The subsidy plan scales down a list of subsidized foods from 300 to 100 goods, reduces fuel and medicine subsidies and introduces a ration card for 800,000 poor families, to roughly halve $6 billion in annual spending on subsidies, Wazni said.

The overall subsidy plan will have to get the green light from parliament since it must approve funding for the cards, and the caretaker prime minister in turn wants the introduction of the cards tied to subsidy removal, he said, outlining a process that will likely take time.

Meanwhile, foreign reserves are draining away faster than officials are making serious moves to ration the money left, back key imports and help the most vulnerable.

The currency has lost most of its value since late 2019, making more than half the population poor as prices soar.

Still, politicians have yet to agree a rescue plan or a new government since the outgoing administration quit in August over the massive Beirut port explosion that killed 200 people.

Already, a year has passed since Caretaker Prime Minister Hassan Diab cited dangerously low reserves when he declared Lebanon’s sovereign default.

Difficult decision
Foreign currency reserves stand at around $15.8 billion, Wazni said. That means, at best, two months of subsidies left before hitting obligatory reserves -- hard currency deposits parked by local lenders at the central bank -- which he estimated at $15 billion.

“If the central bank’s foreign reserves keep depleting in the future, at the end of the day these will be what’s left of deposits,” he said.

Central Bank Governor Riad Salameh, who has said obligatory reserves should not be used to fund imports, did not immediately respond to a request for comment on the figures.

Along with its subsidizing of the food basket, the central bank has also drawn on reserves to subsidize wheat, fuel and medicine as dollar inflows dried up.

Remarks about a looming end to subsidies have triggered panic buying and fears of shortages in the import-dependent country.

Wazni said the prospect of a “harsh reaction” to lifting subsidies posed a challenge. “Today, the problem is this is a caretaker government, and this is a difficult decision socially...but it is necessary. It should have been done already.”

Joining a chorus of Lebanese and foreign officials calling on political leaders to end a deadlock in talks for a new government, he warned that without one, chaos would ensue.

To get badly-needed foreign cash, a new cabinet will have to revive IMF talks, reform the public finances and tackle graft at the heart of the crisis.

“This would kickstart the rescue operation. This is a political decision,” Wazni said. “But without a credible government, in a few months things will get worse and worse. ...Poverty, misery and unemployment will rise even more, prices will keep soaring, and there will be chaos.”



Drone Attack Halts Oil Output at Sarsang Field in Iraqi Kurdistan

An oil field in Dibis area on the outskirts of Kirkuk, Iraq (File Photo: Reuters)
An oil field in Dibis area on the outskirts of Kirkuk, Iraq (File Photo: Reuters)
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Drone Attack Halts Oil Output at Sarsang Field in Iraqi Kurdistan

An oil field in Dibis area on the outskirts of Kirkuk, Iraq (File Photo: Reuters)
An oil field in Dibis area on the outskirts of Kirkuk, Iraq (File Photo: Reuters)

A drone attack halted production at the Sarsang oilfield in Iraq’s Kurdistan region on Tuesday only hours before its US operator signed a deal to develop another field.

The Sarsang field is operated by HKN Energy, a privately held US oil and gas company active in Iraq’s Kurdistan region and owned by Hillwood Energy, part of the Hillwood group founded by Ross Perot Jr.

Two hours after the morning attack, HKN Vice President Matthew Zais was in Baghdad with Oil Minister Hayan Abdel-Ghani to sign a preliminary agreement to develop the Himreen oilfield in northern Iraq, the oil ministry said, Reuters reported.

The signing ceremony was also attended by US Ambassador Steven Fagin, whose embassy condemned the drone attacks on oil infrastructure in the Kurdistan region and urged the Iraqi government to investigate and hold those responsible accountable.

Washington said such attacks undermine Iraq’s sovereignty and efforts to attract foreign investment.

Production at the Sarsang field was halted as a precautionary measure after an explosion, two engineers told Reuters.

Kurdistan regional authorities confirmed that the blast was from a drone attack.

No group has claimed responsibility for the attack, but Iraqi Kurdistan security sources said that initial investigations suggested that the drone came from areas under the control of Iran-backed militias.

Heavy plumes of smoke were seen rising from the Sarsang field in the Dohuk region of northern Iraq, said one oil engineer at the field.

Field operator HKN said that the halt to production was to allow firefighters to extinguish the fire, later adding that emergency response teams contained the damage.

There were no casualties, Iraqi Kurdistan's ministry of natural resources and HKN said.

The incident is under investigation and a full assessment of the damage has been initiated, the company said without providing further detail on the cause of the explosion.

On Monday two drones fell on the Khurmala oilfield near Erbil in Iraqi Kurdistan, damaging the water pipes at the field.