1/ A thread on subsidies and the unfortunate need for it until a total financial and economic restructuring has been completed. (Disclaimer: 40-tweet thread ahead)
The road to restructuring will be long and hard, whenever the country actually takes it.
But we also know that a total collapse due to the retraction of subsidies might make the situation irrecoverable, and cause unimaginable pain.
We also need to acknowledge the failures of any system of subsidies that acts at the source instead of targeting the potential beneficiaries.
We can no longer allow subsidies to be lost on smuggling .
We can no longer allow subsidies to cause unnecessary consumption.
Since most of the wages in the country have not been raised to match the FX rate increase, the purchasing power of the Lebanese has collapsed.
In other instances, treating everyone equally would be recommendable, even obligatory, but when it comes to subsidies we should clearly differentiate between those who can afford an increase in price and those who cannot.
Smuggling :
Smuggling has always been an issue in Lebanon with devastating effect on the economy and the finances of the government.
Besides the illicit gains smugglers are raking up, the dwindling reserves are putting at risk the subsidies as a whole and making a potential recovery even more painful.
Some have seen their income actually increase in local currency form, and since they also have access to subsidized goods, the rate of squandering and even spoilage inevitably increases.
This inevitably increases the pressure on the FX reserves .
Since procuring medicine can mostly be done without a proper prescription in Lebanon, panic buying and cheap…
For any subsidies system to work, it should be targeted and this requires a thorough analysis of the potential beneficiaries to differentiate between those who should be recipients and those who can afford to go without them.
A new digital ID should be issued to every Lebanese citizen, irrelevant of age.
The ID, “LebID”, will be connected to a physical smart card and a mobile application. The vast majority of the population can be connected in this way.
How do we decide on eligibility ?
Even if this results in partial formalization (they would register as minimum wage) it would be a great improvement.
This also applies to businesses and freelancers .
How would the system work ?
For example, a lebID holder would have up to 24 000 lbp per month to offset the price of 4 packs of bread per months (around 2 loafs per day).
This would prevent unnecessary subsidies when not required.
All up-front subsidies would be withdrawn and prices will adjust to their true value.
The application of the scheme detailed above will drastically shave off unfair subsidies to those who don’t need it , and help stamp out arbitrage-related smuggling.
While imports obviously have a large impact on cost of living, many businesses do to. But businesses are much easier to track, and should have historical data to back their claims up.
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