Libya: Selected Issues

This Selected Issues paper focuses on energy subsidy reforms in Libya. Energy subsidy reform has become crucial for Libya. Libya has a unique chance to fully compensate the population for welfare losses and still achieve budgetary savings. Whether the government decides to use general transfers or targeted support based on income brackets, it can compensate for the expected increase in energy prices and realize some budgetary savings at the same time. Eliminating subsidies is always a challenging process. The cost to the budget is large, and Libyans are bearing the burden of a subsidy that they do not fully receive. Furthermore, energy subsidies lead to overconsumption of energy, eventually leading to premature resource depletion. Given the significant price disparities and considerable levels of smuggling, slow price gradual adjustments are unlikely to be effective in Libya. Libya has an opportunity to gradually phase out subsidies, compensate citizens for the anticipated welfare loss and realize budgetary savings. A clear and effective communication with the public early on would facilitate adjustment and minimize potential public rejection.