After over a year and a half of subsiding goods (Circulars 530 and 535) to fight inflation after the Lira rate fell, the BdL has changed course on its approach to subsidies by introducing ration cards.

The caretaker cabinet has submitted a law that will open the door for ration cards to the poor, providing $137 per household, by targeting 750,000 to 800,000 individuals within the poverty bracket.

The ration card will enable the reduction of subsidies and reduce reserve losses.

Subsidy levels to wheat, which cost $160m annually, are expected to remain. Subsidies to EdL will also remain, though the state of controversial fuel subsidies remains unclear. Subsidies for medicine will be cut by 50%, as per the cabinet plan announced in March for subsidies. This has already led to shortages and a humanitarian crisis in pharmacies and hospitals, with merchants holding up supplies.

Roughly a third of subsidized goods were previously rumored to be smuggled, another third went to consumers not in need, and only one third were estimated to truly aid the poor. Subsidized goods were located on supermarket shelves, from Kenya, Kuwait to Canada.

Many had anticipated this move and had even hoped for a sooner execution that could have saved some more reserves. The target is to reduce the total subsidy bill from $6bn down to $3bn.

Subsidies distort prices, leading to consumers and smugglers reaping value out of the needy. In theory, the subsidy rationing card provides a lifeline directly targeted to the poor, though it appears uncertain how the government will be able to target recipients

The ration card is estimated to cost $1.2bn. Part of the $246m loan approved by the World Bank in March is expected to be used. The government was reported to so far not have provided information requested by the World Bank on target recipients.

The remaining is expected to come from reserves at BdL. It remains to be seen how reserves will be provided without a 2021 budget in place since BdL wants to avoid digging into its $16bn in remaining mandatory reserves, equivalent to 15% of commercial banks’ foreign currency deposits.