Osama Habib| The Daily Star BEIRUT: Lebanon will experience its worst inflation in history once the Central Bank’s subsidies are totally lifted on fuel oil and diesel, economists and experts warned. The warning came as Prime Minister-designate Najib Mikati desperately struggles to overcome all the obstacles in the formation of a new Cabinet, which is expected to restore some confidence in the country as well all reduce the dollar exchange rate against the Lebanese pound. Observers and international organizations are also closely monitoring the intensive discussions in the Lebanese parliament to approve the capital control law and the ration card.
The Central Bank is expected to lift all subsidies on fuel oil and diesel at the end of September 2021, a move that is expected to have a devastating impact on the already fragile economy if this action was not matched with the issuance of the ration card and serious attempts to implement reforms. Marwan Barakat, group chief economist and head of research at Bank Audi, told The Daily Star that full subsidy removal is expected to have additional significant inflationary effects expected at close to 180 percent (On top of the 316 percent inflation reported between June 2019 and 2021). “This additional inflation is driven by the direct effects of the increase in oil prices on transport cost and housing energy, but also on the indirect effects caused by this supply push inflation on all other sectors in the economy. It is yet worth mentioning that the subsidy lifting has become a necessary evil following the significant drop in BDL liquid reserves to $14 billion, which is equivalent to the required FX deposits of banks at the Central Bank,” Barakat explained.