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Working Paper

The Quest for Subsidy Reforms in Libya

GOVERNMENT EXPENDITURES SUBSTITUTION PRODUCTION PRICE LEVELS PRICE INCREASES SUBSTITUTE GOODS STOCK BREAD INCOME COST OF GASOLINE ACTIVITIES ENERGY EXPENDITURE GENERATION REAL GDP ELASTICITY GAS PRICES GASOLINE CONSUMPTION POLITICAL ECONOMY GASOLINE ENERGY PRODUCTS WELFARE INCENTIVES PASTA TOMATOES ENERGY SUBSIDIES GAS SUBSIDY PRICE REAL INCOME WEALTH INFLATION SUBSIDY REDUCTION ELECTRICITY CONSUMPTION GASOLINE SUBSIDIES RETAIL SAFETY NETS ECONOMIC OUTLOOK CENTRAL BANK DISTRIBUTION OF ENERGY OILS OIL PRICES PETROLEUM SAVINGS COSTS OIL BRANDS DATES RENT SURPLUS PRODUCTS BASE YEAR OPTIONS WATER QUOTAS DEMAND CURVES MARKETS DIRECT VALUE INCOME LEVELS PRODUCT INVENTORIES NATURAL RESOURCES GROSS DOMESTIC PRODUCT FOOD PRODUCTS FUELS SUBSIDIES FOOD PRODUCTION MARKET PRICE PRICE CHANGE EXPENDITURE MARKET ECONOMY ENERGY CONSUMPTION CONSUMPTION SUBSTITUTE TEA WAGES BALANCE COUPONS OIL PRODUCER PRICE ADJUSTMENTS MARKET PRICES VALUE ELECTRICITY FREE MARKET ANIMAL FEED DEMAND LOGISTICAL SUPPORT PRICE REGULATION ELECTRICITY GENERATION PRICE CHANGES EXPENDITURES ECONOMY CONSUMERS DEMAND CURVE PETROLEUM GAS ENERGY SUBSIDY CONSUMPTION OF ENERGY MARKET RETAIL PRICES FOOD ENERGY PRICES PRICE INCREASE MARKET VALUE HYDROCARBONS ELECTRICITY PRICES FOOD SUBSIDIES TRADE GDP GOODS INTERNATIONAL MARKET SUPERMARKETS PRODUCTS’ MARKET CRUDE OIL FUEL OIL RESERVES GINI COEFFICIENT AVAILABILITY WHEAT RICE CONSUMER PRICES TARGETED SUBSIDIES VEGETABLE OILS PRICE LIBERALIZATION PETROLEUM PRODUCTS FOOD PRICES EVAPORATED MILK ELECTRICITY PRODUCTION CASH SUBSIDIES DIESEL KEROSENE FLOUR FOOD SUBSIDY PRICE SUBSIDY PRICES APPROACH ENERGY PRICE PRODUCTION COSTS ENERGY DEVELOPMENT POLICY INCOME GROUPS SUGAR
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World Bank Group, Washington, DC
Middle East and North Africa | Libya
2015-04-02T18:34:15Z | 2015-04-02T18:34:15Z | 2015-03

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.

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