The Quest for Subsidy Reforms in Libya

Abdelkrim Araar, Nada Choueiri and Paolo Verme
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Nada Choueiri: International Monetary Fund

Chapter Chapter 5 in The Quest for Subsidy Reforms in the Middle East and North Africa Region, 2017, pp 119-156 from Springer

Abstract: Abstract Shortly before the 2011 Libyan revolution, consumers’ subsidies were rapidly increased by the regime in an effort to reduce social discontent. In the aftermath of the revolution, these subsidies became important for people’s subsistence, but also a very heavy burden for the state budget. Since then, the Libyan government has been confronted with the necessity of reforming subsidies in a politically and socially complex environment. This paper uses household survey data to provide a distributional analysis of food and energy subsidies and simulate the impact of subsidy reforms on household wellbeing, poverty, and the government’s budget. Despite the focus on direct effects only, the results indicate that subsidy reforms would have a major impact on household welfare and government revenues. The elimination of food subsidies would reduce household expenditure by about 10 percent and double the poverty rate while saving the equivalent of about 2 percent of the government budget. The elimination of energy subsidies would have a similar effect on household welfare, but a larger effect on poverty while government savings would be almost 4 percent of the budget. The size of these effects, the weakness of market institutions, and the current political instability make subsidy reforms extremely complex in Libya. It is also clear that subsidy reforms will call for some form of compensation for the poor, a gradual rather than a big bang approach, and a product-by-product sequence of reforms rather than an all-inclusive reform.

Keywords: Gross Domestic Product; Government Expenditure; Household Expenditure; Poor Household; Cash Transfer (search for similar items in EconPapers)
Date: 2017
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Working Paper: The quest for subsidy reforms in Libya (2015)
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DOI: 10.1007/978-3-319-52926-4_5

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