Younes Abu Sheiba writes about international experiences of replacing in-kind subsidies with cash

Written by Professor of Economics at the Faculty of Economics and Political Science, Misrata University, Dr. Younes Al-Tayyib Abu Sheiba:

To those who still have reservations about replacing in-kind subsidies with cash, we understand that your concerns are legitimate and revolve around three main axes:

• Lack of trust: How do we ensure that the cash amount reaches the citizen before prices rise and pressure their livelihood?
• Leakage and corruption: How do we prevent fake beneficiaries and ensure that the support goes only to eligible people instead of leaking into the black market and smuggling?
• Fear of shock: How do we absorb public anger and ensure stability in a country that relies almost entirely on oil rent?

We do not present mere theorizing, but rather review three international experiences that faced the same challenge and succeeded in dismantling these knots, making them a true mirror of the Libyan situation.

1. Iran (2010): The miracle of “building trust” and ending smuggling

The closest to Libya in spirit and structure (a rentier state, cross-border smuggling, and a distorted economy).

What did they do? The government raised gasoline, diesel, and kerosene prices all at once to reach 90% of the global price. The risk was enormous.

The ingenious compensation mechanism (pre-emptive trust strike): Instead of giving citizens promises, the government opened bank accounts for every citizen and deposited the cash subsidy (45 dollars per person monthly) two full months before the price increase. The money entered people’s pockets while they were still paying the old subsidized price. This procedure alone removed fear and created an invaluable trust balance.

Final results:
Gasoline consumption immediately decreased by 20% because citizens felt the value of money in their hands and became more careful in consumption.
Smuggling to Afghanistan and Pakistan ended completely, because the price gap that fed corruption cartels disappeared overnight.
Lesson for Libya: When citizens feel financial security before the price shock, they transform from opponents of reform into partners in reducing corruption and smuggling.

2. India (2013–2015): Executing “ghost beneficiaries” through technology

The largest program in the world for replacing cooking gas subsidies, addressing the leakage problem that closely resembles Libya’s fuel subsidy issue.

What did they do? India fully liberalized the price of LPG cylinders, a commodity that was feeding a massive black market for illegal commercial use.

The “smart dual payment mechanism”: The citizen pays the full commercial price upon purchase, then within 48 hours, the subsidy is transferred directly to their bank account linked to their biometric identification number (Aadhaar). No intermediaries and no paper coupons.

Corruption massacre in numbers:
Ghost beneficiaries disappeared because the system exposed them. It was no longer possible to sell subsidized cylinders on the black market; only real citizens received cash in their accounts.
India saved 8 billion dollars annually from money that was going to thieves and cartels.
Lesson for Libya: Digitization and linkage with the national number are not a luxury, but the weapon that crushes corruption and restricts support to legitimate beneficiaries.

3. Egypt (2014–2019): An Arab lesson in smart gradualism and the smart card

An Arab experience that succeeded in breaking fuel subsidies without bloodshed, through integrating technology and expanding social protection programs.

Challenge: Energy subsidies consuming the budget, and fuel smuggling across borders.

Dual reform mechanism:

Smart card system: Before raising prices, the state imposed a “smart card” system for fuel supply, which eliminated the black market and smuggling, and precisely determined each vehicle’s consumption. Every liter sold became electronically monitored. Gradual price increases accompanied by a massive expansion of the cash conditional transfer programs “Takaful and Karama,” where a large part of subsidy savings was redirected into cash grants to poor families via banking cards.

Results of the experience:
The fuel subsidy bill decreased from astronomical levels to almost zero now, without major security shocks.
The number of beneficiaries of cash transfers doubled to cover millions of the most needy households accurately.
Lesson for Libya: Reform is not “raising prices and leaving people,” but rather a precise surgical process using technology to close smuggling channels, and using freed subsidy money to build a real cash safety net that protects the poor before the rich.

The three experiences prove that failure is not inevitable. The secret is not in clinging to wasted in-kind subsidies, but in “timing” (depositing cash before price increases as Iran did), “technology” (identity verification to eliminate ghost beneficiaries as India did), and “smart gradualism” (redirecting savings to the poor through digital cash systems as Egypt did).

The alternative to reform is not maintaining the status quo, but financial collapse and increased smuggling until the rent is completely exhausted, and then the shock will come without any safety net.