Wheat shortage leads to rationing of state-subsidised bread and jeopardises its funding

Lebanon turns to IMF to help it cope with food crisis

photo_camera PHOTO/REUTERS - Workers pack bread at a bakery in Beirut, 30 June 2020

Night is falling in Beirut, but the long queues are not going away. Hundreds of people wait for hours for a piece of pita bread, the state-subsidised food in the midst of a wheat shortage caused by the Russian invasion of Ukraine and exacerbated by the hoarding of flour in bakeries and smuggling at the borders. For the moment, Lebanon is paying. The burden falls on the depleted treasury to fund the fight against hunger in a country that has been struggling to get back on its feet for months. The current pace of spending, however, is not sustainable. The continuing fall in foreign exchange reserves prevents the Lebanese Central Bank from meeting the ever-increasing costs. 

Miles-long lines of Lebanese lining up around shops, waiting for food, have been the norm since mid-June despite the fact that the state has been providing subsidies for Arab bread since the outbreak of the economic crisis in 2019. But pressing grain shortages, caused among other factors by disruptions in supply chains, pushed up the price of bread by 18% in a country that before the war imported 60% of its wheat supply from Ukraine. 

Bakeries have been forced by circumstances to ration subsidised bread amid accusations that they are using state flour to make other products. Those who were assured of a slice yesterday no longer take it for granted today. This explains the increase in confrontations in the queues experienced this week at several distribution points in the country, where outbursts of violence have proliferated to the point that the security forces have had to intervene to prevent further damage.

"To a large extent, in terms of the global supply chain, coupled with limited foreign capital, it will be even more difficult to maintain the same level of wheat imports," Hussein Cheaito, a Lebanese economist at The Policy Initiative, a Beirut-based think tank and non-resident fellow at the Tahrir Institute for Middle East Policy, tells Atalayar. The end of state subsidies for pita bread could be the straw that breaks the camel's back in Lebanon, the point of no return that triggers further social unrest.   

With Sri Lanka's direct precedent, the international community fears that more countries could follow in its footsteps. We are already seeing a lot of parallels between Lebanon and Sri Lanka in these terms," says Cheaito, "but we are talking about two different geographies and different commercial structures. "There are many similarities: the food crisis is hitting them hard, along with hyperinflation, intermittent access to electricity, and deteriorating infrastructure. Also from the point of view of corruption and nepotism. Low taxes and reckless spending now coincide with Lebanon operating with low foreign exchange reserves, a very unstable currency and weak job creation," adds The Policy Initiative's Lebanese economist. 

Adding to this battery of problems is the drastic reduction of wheat storage capacities in the Mediterranean nation. The detonation in the port of Beirut in August 2020, one of the largest non-nuclear explosions in history which killed more than 200 people, injured some 7,500 and devastated several of the capital's neighbourhoods, caused irreparable damage to the silos, which were practically reduced to ashes. In this regard, the interim Finance Minister, Amim Salam, has assured that several countries and international organisations have offered to finance the new grain depots to the tune of 100 million dollars.

Escasez trigo L铆bano

The World Bank (WB) and the International Monetary Fund (IMF) have stepped in to bail Lebanon out. Loans from both are the Lebanese regime's last shot in the arm to rescue the country economically and regain some legitimacy. In May, the WB granted a $150 million loan to Lebanon, approved on Tuesday, "to finance immediate wheat imports to avoid short-term supply disruptions and help ensure affordable bread for poor and vulnerable households, including displaced populations and refugees," the agency said. 

For its part, the IMF struck a deal in April with the incumbent Lebanese government headed by tycoon Najib Mikati for a $3 billion loan. In return, Beirut pledged to implement a series of political and fiscal reforms, including a bank restructuring strategy, capital controls, a budget for 2022 and a new banking secrecy law. The latter condition was passed in parliament on Tuesday in the first session since the May parliamentary elections, although the amendments were watered down from the original text outlined by the IMF, according to Reuters.

Najib Mikati Jan Kubis

The bill, which received the green light in parliament, does not lift banking secrecy completely, but allows certain state institutions to do so only and exclusively in the case of criminal investigation for crimes of illicit enrichment, money laundering and terrorist financing. In contrast, the original proposal would have allowed the lifting of banking secrecy to investigate all types of financial illegalities. Lebanese hawks will now have to convince the IMF of the new conditions. 

"More reserves have been spent since the beginning of the crisis than we will receive from the IMF," Lebanese analyst Maroun Sfeir, who is sceptical of the intentions of the country's sectarian political class, tells this newspaper: "If the IMF reforms are actually implemented, it means that Lebanon's political and financial establishments will be weakened. And I think they like to 'shoot themselves in the foot'. So my guess is that they will try to blackmail the international community and the IMF into supporting Lebanon without 'real reforms', holding the people hostage". 

Lebanon is going through one of the worst economic crises on record since the mid-19th century, an unprecedented situation, according to World Bank data. In 2020, the country defaulted on its debt, lost 90% of the value of its currency and pushed four out of five Lebanese below the poverty line, according to the UN scale. "Without real structural reforms - which are unlikely to happen soon - all funds will fall short. Because the system of bad governance and corruption is fuelled by loans, grants, donations and foreign investments", says Maroun Sfeir.

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