Dec 08, 2020
Position Statement 3 - State-subsidies are not the solution anyway

Collective of Independent Social Protection Experts
Position Statement 3 - State-subsidies are not the solution anyway


December 8, 2020

In light of our previous statements that have repeatedly voiced the importance and urgency of universal social protection, we, the collective of social protection experts, maintain that subsidisation or de-subsidisation are not the solutions for addressing long lasting inequality and inequity in the country. In the current crises that Lebanon is witnessing, we reiterate the urgency to enact a comprehensive universal social protection framework, based on a social contract, and guaranteeing protection for all during their life-cycle.


What are subsidies?

Subsidies are a type of social assistance similar to non-contributory transfers in cash, quasi-cash (such as food vouchers), or in-kind assistance. They consist of mechanisms through which certain goods or services are financially supported by the state, and sold nationally at lower prices. Subsidies are generally presented by policymakers as a tool to protect against price fluctuations, alleviate poverty, and maintain standards of living. Typically, they are used in contexts of crisis in response to looming instability. Subsidies reflect a regressive form of assistance. Their impact on poorest households is difficult to quantify on the one hand, and on the other, middle- and upper-income segments of the population tend to benefit from some schemes even when not needed, mainly when these subsidies are universal and not channeled through a proper targeting mechanism, which renders them, in turn, completely inefficient.1


Current subsidisation in Lebanon

The ruling elite has continuously and increasingly trespassed state institutions and laws in a policy making process which solely aimed at the distribution of rents, benefits, and spoils. Over the past decades, state dysfunction and elite incompetence finally yielded multiple macro-economic, fiscal, and monetary crises. Since October 2019, these compounded crises have taken place in the context of an embryonic social state. Adopting a risk-management type of social protection policy, Lebanon has relied on subsidies incurring depletion of already thinning resources. Social risk management is an adaptive social protection framework that focuses on vulnerable groups and rests on targeting via cash transfers, and food subsidy reforms. In such a frame, political status quo is maintained through the prioritisation of budget efficiencies away from social cohesion or transformation goals. In fact, some observers argue that rapid increases in food prices can explain the emergence of social conflict, knowing that recent data shows that a significant part of the Lebanese population suffers from food insecurity, with approximately half of the population being reportedly concerned about their ability to pay for enough food.

In this context and in response to the exchange rate crisis and its impact on domestic prices, Lebanon resorted to subsidizing imports of vital goods such as fuel, medication, and wheat using a monetary policy scheme employed by the Central Bank at the official exchange rate (LBP 1515=USD 1). In addition, a food basket was subsidised since July 2020 (LBP 3850= USD 1). Such forms of subsidisation cannot address the increasing impoverishment of the population, and the lack of access to basic social protection rights and services.


Why de-subsidisation?

Today, and in a context of acute multi-layered crises in Lebanon, and in the absence of any comprehensive social policy, or social crisis mitigation plan, a suggested quick fix as a way out of the crises has been the elimination of subsidies. In practice, de-subsidisation will mean that the prices of the above-mentioned goods will no longer be linked to the official exchange rate of the Lebanese pound against the US dollar, which will imply higher prices and costs on the consumers. Although a partial de-subsidisation is currently framed as a possible policy solution, waiving subsidies will incur a heavy social impact on low- and middle-income groups. The increase of the price of medication is deemed to have the most dangerous impact on the population in general and the capital of the NSSF in particular. Discussions of de-subsidisation are taking place amidst a stark shortage of accurate data on available reserves. The process also lacks any strategic planning due to the obvious incompetence and dysfunction of the state elite and the fear of the latter from the outburst of social unrest following the decision of de-subsidisation.


What is our position: Nothing short of universal social protection

From our vantage point that consecrates the importance and urgency of universal social protection, the Collective reiterates that subsidisation as a social assistance mechanism is not the solution for addressing long-standing social grievances and staggering levels of poverty


In any case, resources needed for subsidisation should not be funneled from the central bank mandatory reserves which would directly affect the population and other sources should be tapped into such as progressive taxation, bank recapitalization, as well as accountability mechanisms that ensure the recuperation of stolen funds. In this vein, cash transfers that hinge on additional state indebtedness, targeting affected households seem inefficient and irrelevant since more than half the population is already poor and more will follow upon upcoming de-subsidisation.
 

Upon the urgent formation of a cabinet, subsidisation policies should be carefully reviewed and revised within an overarching comprehensive social protection framework accompanied with a social and economic dialogue. Finally, we strongly urge all efforts and forces to urgently work together towards a comprehensive social policy.2
 

Lea Bou Khater
Marie-Noëlle AbiYaghi
Sally Abi Khalil
Sami Zoughaib
Maha Shuayb
Gilbert Doumit
Lara Feghaly
Arab NGO Network for Development, ANND

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References:

1- Universal subsidies are usually easy to manage and are out in place to address a broad crisis. Meanwhile targeted subsidy becomes a must when resources are scarce and universal subsidies represent huge risk of leakage and exclusion.


2- As we have already stated previously, in June 2020: https://daleel-madani.org/press-releases/position-social-protection-expert-group-lebanese-governments-financial-recovery-plan; and in April 2020 : https://daleel-madani.org/civil-society-directory/lebanon-support/press-releases/social-protection-emergency-response-bridge-toward-comprehensive-national-social-protection-plan

 


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