Libya: Selected Issues

IMF Staff Country Reports, June 25, 2025

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The Selected Issues paper focuses on energy subsidy reforms in Libya.
Energy subsidy reform has become crucial for Libya.
Libya has a unique chance to fully compensate the population for welfare losses and still achieve budgetary savings.
Whether the government decides to use general transfers or targeted support based on income brackets, it can compensate for the expected increase in energy prices and realize some budgetary savings at the same time.
Eliminating subsidies is always a challenging process. The cost to the budget is large, and Libyans are bearing the burden of a subsidy that they do not fully receive.
Energy subsidies lead to overconsumption of energy, eventually leading to premature resource depletion.
Given the significant price disparities and considerable levels of smuggling, slow price gradual adjustments are unlikely to be effective in Libya.
Libya has an opportunity to gradually phase out subsidies, compensate citizens for the anticipated welfare loss and realize budgetary savings.
A clear and effective communication with the public early on would facilitate adjustment and minimize potential public rejection.

Phase out energy subsidies gradually while implementing compensatory measures to offset welfare losses.
Use either general transfers or targeted support based on income brackets to compensate for expected increases in energy prices.
Design compensation schemes that allow simultaneous protection of vulnerable households and realization of budgetary savings.
Prioritize transparent and early communication with the public to facilitate adjustment and reduce the risk of public rejection.

Large fiscal cost of maintaining energy subsidies.
Inequitable distribution: Libyans are bearing the burden of a subsidy that they do not fully receive.
Overconsumption and premature resource depletion driven by subsidized energy prices.
Significant price disparities and considerable levels of smuggling, which undermine the effectiveness of slow, gradual price adjustments.

Choose between general transfers and income-bracket-targeted support depending on administrative capacity and equity objectives.
Combine subsidy phase-out with credible communication strategy to build public support.
Monitor indicators related to smuggling and cross-border price differentials to inform the pace and sequencing of price adjustments.

Libya: Selected Issues, June 25, 2025.

Libya: Selected Issues; IMF Country Report No. 25/149; May 30, 2025
- Libya: Selected Issues; IMF Country Report No. 25/149; May 30, 2025 (Markdown version)
- Libya: Selected Issues; IMF Country Report No. 25/149; May 30, 2025 (PDF)