Lebanon’s central bank asked the government on Thursday to provide it with a legal basis to lend it foreign currency from mandatory reserves to fund subsidized fuel imports.
The statement by the bank came after a meeting with President Michel Aoun and caretaker energy minister Raymond Ghajar earlier on Thursday to discuss worsening fuel shortages across the country.
“If the government insists on borrowing … it should approve the suitable legal framework that would allow the central bank to use the liquidity provided by the mandatory reserves,” the bank said.
It did not specify what legal framework would be needed to allow it to lend to the government from the reserves.
Mandatory reserves, hard currency deposits parked by local lenders at the central bank, represent a percentage of customer deposits and are usually not drawn upon except in exceptional circumstances, with the correct legal permission.
The bank said it could, under the law, lend to the government from such reserves during circumstances of “exceptional danger”, as Lebanon was going through now.
The country is in the throes of a deep economic crisis that is posing the worst threat to its stability since the 1975-1990 civil war. Shortages of fuel in past weeks have forced motorists to queue for hours for dribbles of gasoline, with squabbles erupting among frustrated citizens.
The request is an indication that Lebanon has all but run out of foreign reserves to fund a program that subsidizes basic goods such as wheat, fuel and medicine. The program costs Lebanon around $6 billion a year, half of which is spent on fuel.
The central bank, which again called for setting up a new government to begin reforms, said the subsidies scheme was important for the country’s social and economic stability, but had to be streamlined to cut waste.