Publication: The Quest for Subsidy Reforms in Libya
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Date
2015-03
ISSN
Published
2015-03
Author(s)
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.
Link to Data Set
Citation
“Araar, Abdelkrim; Choueiri, Nada; Verme, Paolo. 2015. The Quest for Subsidy Reforms in Libya. Policy Research Working Paper;No. 7225. © World Bank Group, Washington, DC. http://hdl.handle.net/10986/21673 License: CC BY 3.0 IGO.”
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