MENA region that has made progress in most of the areas necessary for successful reform in both the MENA region and elsewhere during the last 30 years (Table 1).<sup>1</sup> In effect, IMF (2014) argues that the changes observed in energy subsidies since 2012 have benefitted from a gradual pace of adjustment and comprehensive coverage; that is, changes have affected all energy sources and have successively increased all energy prices. Because of fiscal and equity concerns, the Tunisian government supports the reversal of energy subsidies, a position also supported without reservation by international financial institutions. The transition government has included several compensation mechanisms to smooth the effect of the subsidies’ removal. No other country in the MENA region has initiated subsidy reforms of such breadth.

Table 1: Implementation Status of Most Recent Subsidy Reforms in MENA

||Preparation|Gradual Pace<br>of Adjustment|Breadth of<br>reform|Consensus Building<br>and Communication<br>Strategy|Role of<br>Partners|Mitigating<br>measures|
|---|---|---|---|---|---|---|
|Egypt|_X_||||_X_|_X_|
|Jordan|_X_|_X_|_X_|_X_|_X_|_X_|
|Mauritania|_X_|_X_|_X_||_X_|_X_|
|Morocco|_X_|_X_|_X_|_X_|_X_|_X_|
|Sudan|||||_X_|_X_|
|Tunisia|_X_|_X_|_X_|_X_|_X_|_X_|
|Yemen|_X_||||_X_|_X_|

_Source:_ IMF (2014, 48).

The progress made so far on multiple aspects of a successful reform begs the question as to why a more decisive energy subsidy overhaul has not already taken place: the answer is that there are several factors in play. First, even though the universal subsidy system was partly justified as a social protection mechanism, it was also designed to protect and strengthen the competitiveness of local firms by providing them with cheap energy sources. These noncompetitive enterprises, which employ unskilled workers and depend largely on government support through energy subsidies and generous tax exemptions, may not survive if subsidies are eliminated. The World Bank (2014) provides a detailed account of the complex economic, financial, and governance factors associated with generalized subsidies across noncompetitive sectors of the Tunisian economy.

Second, reforms have not only economic, financial and governance implications, but also marked welfare implications. Whether deliberately sought or not, subsidy reforms generate a pattern of winners and losers. Estimates by the World Bank (2013, 17) suggest that a more decisive reform of all energy subsidies—along the lines currently conceived by the government of Tunisia—would have costly and increasing welfare impacts, around 3% of household consumption in the short run and about 5% in the long run.<sup>2</sup> Such impacts—without a careful compensating strategy—do not, expectedly, create a large demand for reform among those currently benefiting from those subsidies.

> 1 IMF (2014) analyzes 25 reforms of fuel and food subsidies in 15 countries across five continents between 1983 and 2012.

> 2 The increasing effect on household consumption reflects the loss of production among noncompetitive sectors of the economy that lose energy subsidies. See World Bank (2013) for a more detailed explanation.

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