Al-Shalwi: When Wealth Becomes an Economic Burden; A Technocratic Reading of Libya’s Fuel Subsidy Path Over Nearly Five Decades

Oil and economic expert Abdulmonsef Al-Shalwi wrote an article stating:

For nearly forty-eight years, fuel subsidies in Libya have represented one of the largest components of public spending and one of the most influential factors shaping the country’s economic and monetary structure.

From the late 1970s until this year, Libya’s total public spending exceeded $1 trillion, with nearly a quarter of that spending directed solely toward fuel subsidies, at an estimated value exceeding $250 billion.

These figures do not merely reflect a social support policy; they reveal an entire economic trajectory in which the relationship between the state and oil wealth, and between the economy, production, and consumption, was fundamentally reshaped.

When an oil-producing country spends an average of $5.2 billion annually on fuel subsidies over nearly half a century, while average annual public spending does not exceed $20.8 billion, this means that a single budget item consumed around 25% of the country’s total public spending throughout that period.

However, the more alarming indicator is not the size of the subsidies themselves, but the actual return generated from them. Estimates suggest that the state recovered no more than $5 billion from the sale of subsidized fuel, meaning that only about 2% of the money spent on this file returned to public coffers, while the net financial loss reached approximately $245 billion — representing a loss rate estimated at 98%.

In economic terms, this means that for every $100 spent on fuel subsidies, less than $2 returned to the state treasury, while the remainder disappeared through excessive consumption, smuggling, the parallel economy, and poor resource management.

The subsidy system may have provided relative social stability during certain periods, but it also created an economy based on consumption rather than production. Instead of directing a substantial portion of those resources toward building strategic sectors, they were exhausted in subsidies with low economic and developmental returns.

Had a significant share of the $245 billion net loss been redirected toward productive investments, Libya could have witnessed a radical transformation in the structure of its economy. These funds would have been sufficient to build stable electricity systems that reduce outages and improve energy efficiency, establish a genuine industrial base, develop the agricultural sector to reduce dependence on imported food, and create modern infrastructure and a sovereign wealth fund capable of protecting the rights of future generations.

Even a small fraction of those amounts would have been enough to restructure the education and healthcare sectors and improve the quality of human capital — the most important investment for any country seeking to build a sustainable economy.

From a monetary perspective, the decline in the real purchasing power of the Libyan dinar cannot be separated from the long-term subsidy policies. Selling fuel locally at symbolic prices distorted real prices within the economy, increased consumption and imports, and consequently drove higher demand for dollars.

As the parallel market expanded and fuel smuggling operations increased, a widening gap emerged between the official exchange rate of the dinar and its real market value. Thus, while the Libyan dinar appeared strong on paper due to administrative interventions, it gradually lost a significant portion of its actual purchasing power amid rising prices and growing demand for dollars, gold, and real estate as alternative safe havens.

As for inflation, the economic paradox lies in the fact that although subsidies appeared to reduce fuel prices, they contributed in the long term to creating indirect and accumulated inflation. This is because an economy dependent on imports and consumption financed by public spending, without real domestic production, becomes more vulnerable to budget deficits, monetary expansion, and currency weakness.

Therefore, subsidies did not eliminate inflation as much as they temporarily concealed it, while the underlying causes continued to accumulate within the Libyan economy year after year.

The problem today is not the principle of subsidies itself, as the state remains responsible for protecting vulnerable groups and maintaining social balance. The real issue lies in the structure and management of subsidies. Comprehensive, non-targeted subsidies have proven to drain national wealth more than they help build a productive economy.

For this reason, the required reform should not simply involve raising prices or shifting the burden onto citizens. Rather, it requires a complete restructuring of economic policy: smart subsidies directed specifically to those who deserve them, combined with efforts to reduce waste, combat smuggling, and redirect resources toward investment and production.

The experience of the past four decades has proven that oil wealth alone does not create a strong economy, and that high spending does not necessarily mean real development. Nations are measured by the efficiency with which they manage their resources, not merely by the size of those resources.

Today, Libya stands before a historic choice: either continue with an economic model that gradually consumes its wealth, or transition toward a new development model that transforms oil revenues from a tool of consumption into an engine for production and long-term stability.

Subsidies may provide temporary social calm, but only a strong economy can provide a state with genuine stability and financial sovereignty in the future.