Lost reserves, vanished billions: The subsidy dilemma in Lebanon

Approximately $8.4 billion is all that remains of BDL's foreign currency reserves, down from $29.6 billion in early 2020 (February), according to sources from the Central Bank of Lebanon.

In other words, more than $21 billion (21.2) of depositors' money has vanished since then. The question is, where and how were these funds spent?

During the tenure of Prime Minister Hassan Diab's government, a total of $7.6 billion was allocated for subsidies. As reported by the Central Bank to the Ministry of Finance, the distribution was as follows:

- $2.89 billion for oil imports;
- $1.7 billion for pharmaceutical subsidies;
- Approximately $1 billion for the subsidized food basket;
- $254 million for wheat.

Added to them are 1.8 billion dollars, which includes one billion and two hundred million dollars, allocated to Electricité du Liban (EDL) for fuel and previously pending bills amounting to $600 million.

This is how these funds were spent on subsidies, as acknowledged by the Minister of Finance in Hassan Diab's government, Ghazi Wazni, who stated that the subsidy policy was marred by poor management, low effectiveness, favored traders and monopolists, and encouraged smuggling. 

He mentioned that at that time, he was one of the ministers who strongly opposed the subsidies' form being used and called for gradual reductions to prevent further depletion of the central bank's reserves. 

Meanwhile, other ministers vehemently supported the subsidies and refused to cancel them before issuing the so-called "financial card."

In addition to the subsidies, Lebanon's Central Bank provided $7.5 billion to the banks for old import related expenses.

When the Diab government stepped down and the Mikati government took office in September 2021, there were approximately $14.2 billion left in the reserves.

Despite all this, the subsidy policy continued for some essential goods, medications, wheat, and to support the exchange rate. The reserves have depleted by over $5.7 billion as of today.