Burdensome Subsidy System Exacerbating Fiscal Crisis
BMI View: Reform of Libya's subsidy system is a long way off despite recent proposals, and this will contribute to the ongoing fiscal crisis. We forecast the fiscal deficit to come in at 26.3% and 6.5% of GDP in 2014 and 2015 respectively. Although our core view is for the government to muddle through the crisis, risks to fundamental financial stability will remain significant over the coming quarters.
The Libyan government's plans to limit its costly fuel subsidies are unlikely to materialise over the coming quarters, and this will contribute to the ongoing fiscal crisis. Authorities have long recognised the need to reform the burdensome subsidy system, a legacy of Muammar Qadhafi's rule that affects items including petrol, bread and airline tickets. Subsidies amounted to approximately LYD10.6bn (USD8.7bn) in Libya in 2013, equivalent to 15.9% of the total budget for the year. Expenditure from energy subsidies is equivalent to more than 11.0% of GDP, and food price subsidies are equivalent to approximately 2.8% of GDP.
Reform Much Needed...
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