x Abu Dhabi, UAETuesday 23 January 2018

Libya set to tackle its subsidy challenge

Libyan leaders hope to eliminate subsidies for food and fuel and convert them into cash payments to revive economic activity.

Omar Ali Shakmak, deputy of ministry of oil and gas from Libya, in Dubai Jaime Puebla / The National Newspaper )
Omar Ali Shakmak, deputy of ministry of oil and gas from Libya, in Dubai Jaime Puebla / The National Newspaper )

Libyan leaders in Dubai yesterday painted the picture of a country facing economic challenges from all sides.

More than a third (36 per cent) of citizens are unemployed, estimates the economy ministry. A quarter of the population draws its salary from the government, and 70 per cent of the militiamen who fought in the civil war remain independent, some of whom retain their arms.

"Things could be a lot worse," said Mohammed Ali Abdallah, a member of the finance and planning committee in the General National Congress, the current government. "The security situation is directly linked to running the economic wheel; one will not happen without the other."

He and a wave of businessmen who have returned to Libya to help rebuild the country from the government up hope to change the number, starting with the subsidies and laws that helped Muammar Qaddafi to remain in power for four decades.

First on the administration's list is converting the current subsidies regime for food, fuel and power into direct cash payments to Libyans of 38 Libyan dinars (Dh108) per person per month, which it hopes will revitalise purchasing power to get the "economy wheel turning".

Today the government pays out US$11 billion (Dh40.4bn) of subsidies every year, half of that for power and fuel, which retails for 15 Libyan cents a litre - low enough to fill an SUV for $7.

Between 27 to 35 per cent of Libyan fuel supplies are smuggled across the border, estimates the government.

"This is not only a financial problem but also a security problem," Mr Abdallah told a meeting of investors and contractors at the Dubai Chamber of Commerce. "A lot of the border clashes are associated with smuggling."

The government hopes for the system to begin after August to start discouraging the use of large SUVs and the traffic jams that fill up the cities, as well as to save on fuel lost to smuggling and to increase border security.

"We have to have reasonable consumption through the country," said Omar Shakmak, the deputy oil minister. "Transforming the subsidies from the items to cash will have positive effects," he said.

The move echoes an unsuccessful attempt in 2004 by Shokri Ghanem, who served as prime minister in the Qaddafi era, to abolish $5bn worth of food and fuel subsidies in favour of a higher minimum wage, lower taxes and no interest rates.