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A year after the Beirut blast, subsidy cuts compound Lebanon’s desperation

‘Lebanon has never gone through a crisis like this.’

A woman holds a handful of medications.
Many Lebanese pharmacies are running low on much-needed medications. (Robin Tutenges/Hans Lucas via Reuters Connect)

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It’s always go-time at Beirut’s Rafik Hariri University Hospital, the epicentre of Lebanon’s COVID-19 response. But in the midst of Lebanon’s economic downfall, the removal of unofficial state subsidies for medicine and fuel are leaving doctors with impossible decisions.

“We have two patients in the hospital who we haven’t been able to discharge because they require [breathing machines], but they don’t have electricity at home to power the portable devices,” explained hospital director Dr Firass Abiad. “Effectively, discharging them is like a death sentence.”

For now, Abiad has opted to keep both patients in the hospital, at the same time as he searches for medication the facility has run out of, and works to secure enough fuel to keep its equipment and lights running day and night. 

One year after an explosion tore through Beirut’s port, killing 218 people, injuring thousands, and destroying a large part of the capital, the city and country are struggling to bounce back. Politicians have failed to form a new government after it resigned following the 4 August 2020 blast, and there has been no meaningful investigation into the root causes of the catastrophe.  

When the blast hit, the country was already suffering a financial meltdown, and with more than half the population in poverty – and hunger numbers rising – it seemed things couldn’t get any worse. That is, until the government and central bank began to withdraw measures they had put in place to stabilise the prices of some goods it deemed essential.

As foreign currency reserves dwindled, around April the central bank began delaying payments for shipments of imported gasoline and diesel – not only needed for cars but also to power the generators many rely on when Lebanon’s state-provided power cuts out. The next month, it said it could no longer pay for medical subsidies without digging too deep into its reserves. 

Chronic fuel shortages at the pump in recent months have been compounded by a rampant black market in fuel smuggling to Syria. And, in addition to fewer people being able to find diesel to run their generators, the near-bankrupt state utility – Électricité du Liban – has been unable to afford the fuel oil it needs to run its power plants as the government has been giving it less and less money. 

As Sibylle Rizk, director of public policies at Kulluna Irada (We Are Willpower), an organisation that lobbies for political reform in Lebanon, told The New Humanitarian: “[The subsidy system] is coming to an end. Maybe not completely, but for sure it is ending in a completely disorderly manner, and it’s creating a mess in the country.”

An expensive and short-lived programme

Lebanon’s subsidy programme is not really a subsidy programme in the usual sense of the term. Rather, it is an attempt to prop up the government’s policy of pegging the lira to the US dollar. The official government exchange rate is about 1,500 lira per dollar, even though in practice the peg has given way to a black market rate as high as 24,000. 

As the currency began to fall in late 2019, Lebanon’s central bank said it would provide importers of “essential” goods with dollars at the official exchange rate to ensure consumers wouldn’t see major hikes in things like bread, medication, and fuel. 

Rizk explains the difference this way: “Normally, subsidies are decided by the government and are implemented through the budget.” However, the current “de facto subsidy, [is in fact]... the continuation of the peg on certain items”.

READ MORE: What future for Lebanon’s subsidy programme?

Critics argue that the subsidy programme was wasteful from the start, and disproportionately benefited Lebanon’s wealthy, who used and purchased more of the basics it covered than the poor. A December 2020 World Bank report bore this out, noting that the richest 20 percent of the population received more than three times as much benefit than the poorest 20 percent.

That said, experts say the chaotic matter in which the subsidies are being withdrawn is making matters even worse. There has been no announcement of the changes, no schedule, and no clear plan on what, if anything, will be brought in to replace the programme and offset the impacts of the loss. Jamal Saghir, a former World Bank official from Lebanon who is now a fellow at the American University of Beirut, is concerned about the confusion the changes are sowing among an already frustrated populace. 

“What they [the government] are doing is removing the subsidy in a very subtle, non-transparent way, not sending clear signals, and without telling the people what is the end of the road of this,” Saghir told The New Humanitarian. “Are we talking about removing the subsidy fully or partially? They’ve created a hysteria for the consumer, who doesn’t know what they’re going to do.”

While caretaker Economy Minister Raoul Nehme presented a proposal for subsidy reform last December that would have moved the country from across-the-board subsidies to aid specifically targeted to the poor, parliament has yet to adopt any official plan for removing the subsidies or said what would replace them.

Asked whether there is currently any plan in place, a spokesperson for the Ministry of Economy pointed The New Humanitarian to the Prime Minister’s office, which, in turn, blamed parliament for the lack of action. None would speak on the record. 

Saghir pointed out that Lebanon’s lack of a comprehensive social safety net programme is particularly worrisome, although some Lebanese, Palestinian, and Syrian refugees do receive aid from various UN agencies and NGOs. 

“The most important part when removing subsidies is the safety net part,” Saghir said. “How are you going to compensate people so that they can get the funds to be able to pay for that increase of prices for basic needs?”

A $247 million World Bank loan approved early this year was meant to provide cash assistance to the country’s poorest families, in part to offset the effects of subsidy removal, but it has been delayed by months due to bureaucratic issues and the Lebanese government’s failure to meet conditions for disbursement by the initial deadline.

Parliament also approved a separate plan to provide a monthly payment of $93 per month to poor families, in lieu of the subsidy programme, but the government has yet to identify where the money would come from or who would be eligible.

Assem Abi Ali, general supervisor of the Lebanon Crisis Response Plan at the Ministry of Social Affairs, told The New Humanitarian that even if Lebanon had money to make these payments, another major obstacle in making them is the lack of reliable population data. He pointed out that the country hasn’t held a census since 1932 and doesn’t have accurate databases of taxpayers or social security recipients either.

The ministry is in the process of building a database of some 70,000 needy families who will receive aid via its National Poverty Targeting Program, but Abi Ali said this number is far lower than the number of households that will need assistance if subsidies are fully lifted.

“It’s very difficult to have the targeting as effective and efficient as possible,” Abi Ali said. “We have to do everything from scratch, and that’s the problem, because there’s no time.”

This system has turned out to be prohibitively expensive. Caretaker Finance Minister Ghazi Wazni has said the subsidy programme usually costs roughly $500 million per month. And with the central bank’s reserves rapidly dwindling – they’ve dropped from $30 billion in late 2019 to about $15 billion today (although no one is sure of the exact number) – the government has, in many cases, not been providing the promised dollars. 

As a result, importers have had to purchase currency at the soaring market rate, leading to price rises, and shortages of essential goods. 

Long queues, dark streets

The most visible signs of Lebanon’s deterioration in the past few months have been on the roads: Lines at petrol stations stretch for blocks, and there isn’t even enough electricity for traffic or street lights. 

For Hasan Hamoud, a driver on Beirut’s popular #4 minibus line, which shuttles people from the bustling Hamra district to the city’s southern suburbs, filling up on gas has become a daily struggle.

A year ago, the price of twenty litres of gasoline, as set by the Ministry of Energy and Water, was 24,000 Lebanese lira; today, it is 75,600. But the price isn’t the biggest problem; it’s getting the fuel in the first place. 

To avoid waiting in the queues at the few stations that remain open, Hamoud has developed some tricks. Sometimes, he goes in through the car wash at a station where he knows the employees, and pays an attendant to let him jump the line. Other times, he goes to stations where he knows the owners, and they let him skip to the front. Despite these workarounds, there are days when he waits as long as three and a half hours to fill up.

“Even in the war, you didn’t have this situation,” said Hamoud, 63, referring to the country’s 1975-1990 civil war. “During the civil war in Lebanon, the gas might be cut off for two days, and on the third it would go back to normal. But this – Lebanon has never gone through a crisis like this.”

In an attempt to partially alleviate the fuel shortages, the government announced in June that it would give importers of gasoline and diesel a rate of 3,900 lira to the dollar, but this has done little to increase supply and alleviate the shortages. 

Meanwhile, the three-hour regular power cuts that were once the norm in Beirut – so everyone knew what to expect – have stretched to up to 22 hours at a time. The back-up generators many rely on have been unable to fill the gap due to fuel shortages and price hikes, not to mention wear and tear on the machines. As a result, most households have been left without electricity for large parts of the day and night. 

Hamoud said he spends about 200,000 lira a day on fuel, meaning he needs 50 passengers to pay the 4,000 lira fare (four times the pre-crisis cost to ride) in order to break even – not including the three million lira in monthly rent he pays for the van.

But many passengers can’t pay.

“Sometimes I stop and someone tells me, ‘I only have 3,000’, and I let him on,” Hamoud said. “A young boy stopped me today and said, ‘I only have 2,000’. I took him to his destination and told him to keep the 2,000; I don’t want it.”

Desperate times

Many people need immediate help, having already taken drastic measures when unable to get basic necessities.

For the past year, 22-year-old Jinan, who asked that her real name not be published, struggled to find her antidepressants on pharmacy shelves, so her doctor suggested she switch to an alternative medication that has unpleasant side effects, including loss of appetite and insomnia. 

When even the substitute became a rarity, she lowered the dosage, then she stopped taking the antidepressants altogether. “It became increasingly hard to find the medication, so I took the rash and impulsive decision to stop taking it,” Jinan told The New Humanitarian, adding that she had also stopped going to therapy due to price hikes.

After the central bank said it couldn’t continue paying medical importers, the Ministry of Health announced in July that medications that cost less than 10,000 Lebanese pounds ($8 on the official exchange rate) would no longer be subsidised. Vaccines, medication for chronic illnesses and neurological disorders, and baby formula are still being subsidised for the time-being.

Jinan and many others have been driving from pharmacy to pharmacy, often going to neighbouring towns and cities, to find the medication they need. On top of that, many young adults are struggling with low incomes and unemployment, making access to mental health medication and treatment even more difficult. “[The decision] was best not for my mental health, but for my financial well-being,” Jinan explained.

Pharmacies have shut down and gone on strike due to the shortages, as importers say they’re unable to purchase life-saving cardiac and cancer medicines. 

With no certainty of when medications will return to the market, Lebanese expats visiting family and friends have been stuffing their suitcases with medicines – some life-saving.

But in some cases, the shortages have been fatal. Nine-year-old Zahra Tlaiss passed away on Friday, days after being stung by a scorpion. Her death was avoidable; the hospital did not have any anti-venom injections, and her parents could not find any on their own, despite appeals to the Ministry of Health.

Wheat: The last bastion?

As the other subsidies have crumbled, the government has continued paying wheat importers. This has not prevented the price of bread in shops from nearly tripling (bakeries have said this is in part due to the rising cost of other ingredients like sugar), but some warn that should the wheat subsidy go by the wayside, it could have devastating effects on hunger in the country.

That’s because Lebanon imports more than 80 percent of its wheat, and the currency crisis has also hit local farmers, leaving them unable to ramp up production.

Saghir noted that the removal of the wheat subsidy may be particularly politically sensitive, as similar moves in other countries, including Tunisia and Egypt, have led to bread riots in the past.

“The bread subsidy, in particular, usually triggers something” when it is removed, he said.

While there may not be a political appetite to remove the wheat subsidy, other previously subsidised food items, such as cooking oil, have become scarce, and prices of various foods not on the subsidy list have skyrocketed. Lebanon’s food inflation is among the highest worldwide, with prices soaring above 400 percent. NGOs and charities have noticed skyrocketing demand for food assistance and packages. Some families have coped by skipping meals, reducing their calorie intake, and eating a carb-heavy diet to save money. 

Amelia Charles, social protection and livelihoods adviser at Save the Children, said the most severe issue households in Lebanon face right now is “undoubtedly food security”.

“In July of last year, we reported that half a million children in Beirut are going hungry,” Charles told The New Humanitarian. “The number of reports on child food insecurity have increased since that time.”

As living standards in Lebanon continue to worsen, with no viable solution in sight, Charles fears more children will be at greater risk. “Child labour and child marriage are already on the rise,” she said. “This is expected to continue as the economic crisis continues because we know that fundamentally the inability to provide food is one of the main triggers for parents to send their children to work.”

Edited by Annie Slemrod.

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