Written by: Benghazi University economics professor Ali Al-Sharif
The issue of replacing subsidies, which resurfaces from time to time, is considered one of the fundamental issues due to its direct and indirect impact on the national economy. It is well known that the continuation of in-kind subsidies, especially in the energy sector, results in negative consequences, most notably benefiting foreign residents and encouraging fuel smuggling across borders, which represents a continuous drain on Libya’s economic resources, particularly in energy subsidies.
However, moving toward implementing a replacement policy under the current political and economic conditions involves many risks.
Any serious evaluation should not be limited to calculating the direct effects of subsidy replacement, but must also include indirect effects, foremost among them inflationary pressures. The energy sector is a leading sector that influences all other sectors, and any adjustment in its prices will inevitably affect transportation, production, and service costs, resulting in a general rise in price levels.
This raises a fundamental question: who will bear the cost of this inflation? And how can consumers be compensated for the erosion of their purchasing power when there are not even clear guarantees regarding the value of the proposed cash compensation itself amid current fluctuations? How, then, can a fair compensatory value be guaranteed to cover the accompanying inflationary impact?
In addition, this approach faces a structural challenge represented by the weakness of the transportation infrastructure sector, whether in terms of road quality or the availability of public and private transportation, which would enable citizens to rely on effective alternatives for mobility across the country’s vast geography.
Accordingly, any replacement process—even if the previous conditions are met—requires gradual and carefully studied implementation over several years, potentially exceeding seven years, to ensure a smooth transition from in-kind subsidies to cash subsidies without causing economic or social shocks.
Preserving the state’s resources is a goal everyone agrees upon, but achieving it should not come at the expense of exhausting citizens or burdening them beyond their capacity to endure.
