Libya’s eastern-based administration, led by Prime Minister Osama Hamad, announced its agreement to end fuel subsidies. The government pledged to develop a mechanism for implementing this decision, although specifics remain undisclosed. This move reflects growing economic challenges in the politically fragmented country, where rival governments have struggled for control since the 2011 uprising that toppled former dictator Muammar Gaddafi.
The Hamad-led government, based in Benghazi, approved the proposal during a meeting with senior officials from the Central Bank of Libya (CBL), including deputy governor Mari Barrasi and four board members. The meeting took place at the CBL’s Benghazi branch. While the proposal’s exact timeline and steps for implementation are yet to be clarified, the decision marks an effort to address a long-standing economic dilemma that has fueled corruption and black-market activities.
Fuel Subsidies: A Double-Edged Sword
Libya, an OPEC member, boasts some of the world’s cheapest fuel prices. A litre of gasoline costs just 0.150 Libyan dinars ($0.03), the second-lowest globally according to the Global Petrol Prices online tracker. These heavily subsidized prices have been a lifeline for ordinary Libyans, especially amid ongoing conflicts that have disrupted livelihoods and essential services. However, they have also given rise to fuel smuggling networks, which exploit the price disparity with neighboring countries.
The World Bank estimates the annual value of fuel smuggling in Libya at a staggering $5 billion. Smugglers capitalize on the near-free fuel to export it illegally, draining the country’s resources and exacerbating its fiscal challenges. In the first 11 months of 2024 alone, Libya spent 12.8 billion Libyan dinars on fuel subsidies, according to CBL data. At an official exchange rate of 4.8 Libyan dinars to $1, this equates to approximately $2.67 billion a significant burden on the national budget.
Political and Economic Hurdles
Implementing the subsidy removal proposal presents substantial challenges, particularly in a country still reeling from years of political instability and division. Since 2014, Libya has been split between rival administrations: the eastern government led by Hamad, and the internationally recognized government based in Tripoli under Prime Minister Abdulhamid Dbeibah.
Hamad was appointed by the eastern parliament in 2023, replacing Dbeibah, who had been installed through a United Nations-backed process in 2021. While Hamad’s government has taken decisive steps with this proposal, questions remain about its ability to enforce such measures across the divided nation. Fuel subsidies are deeply ingrained in Libyan society, and removing them could trigger public backlash, particularly if accompanied by rising living costs.
Meanwhile, the Tripoli-based government has also grappled with the subsidy issue. In January, Dbeibah proposed a public survey on the matter but has since taken no further action. This lack of progress underscores the political paralysis that hampers reforms in the country.
Implications of Subsidy Removal
Ending fuel subsidies could have far-reaching economic implications for Libya. On one hand, it could curb fuel smuggling, reduce fiscal deficits, and free up resources for other critical sectors such as healthcare, education, and infrastructure. On the other hand, it risks inflating fuel prices, worsening inflation, and straining the already precarious living standards of Libyan citizens.
The eastern government’s decision highlights the growing urgency to address Libya’s economic woes. However, the success of such reforms will depend on their implementation, public acceptance, and coordination between the rival administrations. Without national consensus and robust mechanisms to cushion the impact on citizens, the policy could deepen the existing divisions and further destabilize the country.
In a nation where governance remains fragmented and economic reforms are fraught with complexities, the proposal to end fuel subsidies represents both a bold step and a formidable challenge. As Libya navigates this pivotal juncture, its leaders must balance economic pragmatism with the realities of a divided and fragile state.
