The Quest for Subsidy Reforms in Libya

38 Pages Posted: 20 Apr 2016

See all articles by Abdelkrim Araar

Abdelkrim Araar

Université Laval - Département d'Économique

Nada Choueiri

International Monetary Fund (IMF) - Research Department

Paolo Verme

World Bank Group; University of Turin - Department of Economics

Date Written: March 30, 2015

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: Energy and Mining, Global Environment, Energy and Environment, Inequality, Social Protections & Assistance, Energy Demand

Suggested Citation

Araar, Abdelkrim and Choueiri, Nada and Verme, Paolo, The Quest for Subsidy Reforms in Libya (March 30, 2015). World Bank Policy Research Working Paper No. 7225, Available at SSRN: https://ssrn.com/abstract=2587517

Abdelkrim Araar (Contact Author)

Université Laval - Département d'Économique ( email )

CREFA
Ste-Foy, Quebec 179Que G1K
Canada

Nada Choueiri

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Paolo Verme

World Bank Group ( email )

Washington, DC 20433
United States

University of Turin - Department of Economics ( email )

Via Po, 53
Torino, 10124
Italy

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