By Sami Zaptia.
London, 28 March 2021:
Libya’s prime minister Abd Alhamid Aldabaiba fired off three decrees last week, including one creating a Ministerial Committee to study proposals for fuel subsidy reforms, while the second and third instructed his Finance Ministry to start paying the stalled family grant and increase pensions.
The three decrees are interlinked.
The Fuel Reform Committee will be headed by the Minister of Economy and aided by the Minister of Finance and the Minister of State for Economic Affairs.
The plan is to substitute the fuel subsidy with a cash grant to all Libyans paid into their bank accounts.
The reform of Libya’s subsidies has been a long saga. There has been talk of reforming them and substituting them with a cash payment into Libyan citizens’ accounts for years – if not decades. But no previous government has had the political courage to do anything about it.
Economic reform package
The subsidy reforms are supposed to be part of an overall economic reform policy. Most experts agree Libya’s subsidy system is broke, corrupt and haemorrhaging the state of fuel and hard currency. Libya has a refinery deficit in fuel and imports the shortfall – paying for it in hard currency.
Illicit trade in fuel by militias
Analysts believe the state will make a huge saving by reforming the fuel deficit, will reduce or end fuel smuggling, reduce illicit trade by criminal civilians and militias – and strengthen and stabilize the state.
Subsidy reform will also help hasten a revaluation of the dinar, strengthening it against hard currencies from its current LD 4.48/dollar. By cutting subsidies, the authorities hope to strengthen the diner in stages over a series of months towards what experts widely believe is the target price of LD 3/dollar. At this price they believe both the official exchange rate and the black-market rate will reach a market equilibrium – plus or minus a few percent.
Protecting the low paid
Disbursing the family allowing and increasing pensions, together with a stronger dinar exchange rate, is a move meant to protect the lower paid and offset the removal of untargeted fuel subsidies.