This month the Government of National Unity’s (GNU) Prime Minister Abdelhamid Dbeibah provoked an angry backlash when he announced that the GNU was pursuing its plan to lift fuel subsidies and described the plan as being ‘irreversible.’ Speaking at a meeting of the Hydrocarbons Committee, he said that the Central Bank of Libya (CBL), as well as international financial institutions and regulatory bodies, had all advocated removing fuel subsidies, explaining that doing so was the best way to clamp down on fuel smuggling.
Fuel smuggling has been a very significant problem over many years with very heavily subsidised fuel being smuggled across the country’s borders where it can be sold at far lower prices than local fuel. It is also being sold on Libya’s domestic black market through informal distribution networks throughout the country. The huge amounts being siphoned off in this way creates serious supply shortages and especially in the south. However, Tripoli and other western towns also experience regular shortages which leads to panic buying and frequent long queues at petrol stations.
According to Auditing Diwan the country is losing around US$750 million a year due to the smuggling while the cost of subsidising prices is rising. Libya spent US$7 billion on fuel subsidies in 2021 but this rose to US$12 billion in 2022 which places additional strains on the public purse. Last year the IMF described subsidies as being ‘particularly problematic,’ noting that Libya’s US$0.03 per litre domestic price of petrol was the second lowest in the world and only higher than Venezuela.
Dbeibah’s push to remove fuel subsidies is therefore an attempt to try to reduce smuggling and alleviate some of the pressures on the state budget. Unsurprisingly, however, his comments did not go down well with the wider Libyan population. Lifting subsidies has long been an inflammatory issue which has been avoided by successive Libyan governments. The cost of living is rising and ordinary Libyans are finding it increasingly hard to get by. Many therefore cannot stomach the idea of having to pay more for fuel and probably for electricity. Dbeibah said that the GNU would provide ‘subsidy alternatives’ to needy citizens but provided no details. The Fuel Alternatives Study Committee, which has been tasked with coming up with alternative payments or benefits, has yet to produce any concrete plan. The central bank is unhappy with the idea of people being given cash payments, fearing that it will cause a rise in inflation. Analysts also complain that such payments will not compensate for a potential fuel price increase of more than 200%.
Dbeibah’s comments therefore triggered an outpouring of fury on social media and angry protests erupted in Zintan and other towns. There were also condemnations from the premier’s political opponents. Some complained that it was not within Dbeibah’s remit to make such decisions, which should be left to the House of Representatives.
Dbeibah acted quickly to stem the growing anger. On 11 January he met mayors from western municipalities and announced that the subsidies would not be cut until Libyans had been consulted in what he described as a ‘national inquiry.’ Then, on 18 January, he said that there would be a public survey and that he was open to receiving opinions on the best method to stop fuel smuggling and the wasting of public money. He noted that it was ‘unreasonable’ for the GNU to spend large sums of money on subsidising the cost of fuel only for it to then be smuggled abroad. He also promised that the GNU would compensate people for the price of fuel either through direct payments or coupons.
The GNU is already in the process of this public consultation but some commentators have questioned the validity of its approach. The government has sent teams of people into the streets to survey views as well as more than 561,000 text messages to eliciting opinions. This has drawn condemnation with Libyans who accuse the GNU of not taking the matter seriously and of adopting a ‘stupid’ approach.
Whatever the results of the survey, Dbeibah clearly miscalculated. Despite the obvious macroeconomic necessity of doing so, lifting subsidies is still beyond the pale for most Libyans, and especially while the cost of living crisis is so tough. Any further attempt to impose this policy is likely to result in further recrimination and reverberations. For someone who is in such a vulnerable political position, proceeding further down this path will be a dangerous move.This excerpt is taken from Libya Focus, our monthly intelligence report on Libya. Click here to receive a free sample copy.
The January 2024 issue of Libya Focus also includes the following:
- Tensions boil over in Misrata…
- UN’s Abdoulaye Bathily is at a standstill…
- New US ambassador is nominated
Energy & Economy
- Dbeibah provokes a backlash over fuel subsidies…
- Bengdara comes under pressure over Hamada al-Hamra gas deal…