Al-Mahmoudi calls for restructuring fuel subsidies
LIBYA – Economist Ali Al-Mahmoudi has said security measures alone will not achieve the desired results in curbing fuel smuggling in Libya, calling for the subsidy system to be restructured and for alternatives to be explored based on allocating quotas to beneficiaries or providing direct cash compensation.
Estimates for fuel and other subsidies
In comments to Sputnik, Al-Mahmoudi said fuel subsidies could reach at least $10 billion this year, equivalent to about 65 billion Libyan dinars by his estimate, in addition to about 35 billion dinars for other forms of subsidy, bringing estimated total subsidy spending to nearly 100 billion dinars.
Claim that 70% of the money goes to networks of influence and smuggling
He claimed that about 70% of that money goes to armed groups, smuggling networks and groups of political influence, and that a large part of it turns into additional demand for dollars on the parallel market, equivalent to about $11 billion at the exchange rate on which he based his estimate.
He added that part of the money is used to buy property and land, increasing demand for them and pushing up prices, arguing that the current subsidy system strengthens the influence of armed groups and, by his analysis, helps prolong political division and maintain the status quo.
The “code” option and direct cash support
Citing other countries’ experience, Al-Mahmoudi said security measures to combat smuggling were insufficient, and proposed two options for subsidy reform. The first is applying the system known as the “code”, used in southern Libya, which allocates set quantities of fuel to beneficiaries.
The second option, as he put it, is replacing in-kind subsidies with direct cash transfers to citizens according to their needs, with the remaining funds directed to investment and development projects rather than consumer spending.
Risks of lower oil prices and pressure on the budget
He warned of growing difficulties the public treasury may face in covering fuel subsidies, salaries and development programmes, especially if prices fall for oil, the main source of public revenue.
He added that smuggling large quantities of fuel abroad wastes money and deprives the economy of the chance to invest it in improving citizens’ living standards and development.
Reform requires studies and government candour
He stressed that there are many proposed alternatives to subsidies and that they require in-depth studies, a clear discussion with citizens, and government candour that explains the implications of the options on the table and provides guarantees of fair and effective alternatives capable of building public conviction that reform is worthwhile.
