# **2. Evolution of subsidies**

Libya’s ample subsidy program dates back to 1971 when a national institute was created to oversee consumption of essential goods. The system covers a number of food and energy products, as well as public services (water, sanitation, education and garbage collection), medicines and animal feed. Subsidies are regulated by a compensation fund that determine prices with the objective of keeping essential consumption items at affordable prices and protect consumers from major global price shocks.

Food subsidies have significantly increased in recent years, imposing a toll on the government’s budget. Data from Libya’s Price Regulation Fund show that the nominal cost of food subsidies has increased from under 172 million LYD in 2001 to over 2 billion LYD in 2012. Over the years, the basket of subsidized goods has seen some variation, from a minimum of 3 to a maximum of 13 products with flour, semolina, and rice consistently subsidized throughout the last decade. A process of subsidy reforms took place between 2005 and 2010 but, at the outbreak of the revolution, these reforms were rolled back almost entirely. This led to a significant increase in the cost of food subsidies from 1.1% of GDP in 2010 to 2% of GDP in 2012 (Table 1). As a share of government expenditure, food subsidies also doubled from 2 to 3.8 percent between 2010 and 2012. Flour, sugar, rice, vegetable oil and semolina represent the lion’s share of the cost of food subsidies to the government.

**Table 1: Government Expenditure on Food Subsidies 2001-2012 (Millions LYD)**

||2001|2002|2003|2004|2005|2006|2007|2008|2009|2010|2011*|2012*|
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|Wheat|12|99|-31|77|0|0|0|0|0|0|n.a.|n.a.|
|Flour|124|151|338|527|491|390|467|925|953|703|n.a.|n.a.|
|Sugar|11|22|39|44|55|54|107|0|0|0|n.a.|n.a.|
|Rice|8|52|46|104|101|108|97|141|236|187|n.a.|n.a.|
|Olive and other vegetable oils|-6|5|99|165|120|116|134|0|0|0|n.a.|n.a.|
|Tea|18|11|15|31|17|41|34|0|0|0|n.a.|n.a.|
|Tomatopaste|9|9|16|0|0|0|0|0|0|0|n.a.|n.a.|
|Dry yeast|0|1|4|11|10|17|13|0|0|0|n.a.|n.a.|
|Evaporated milk|-7|3|56|147|0|0|0|0|0|0|n.a.|n.a.|
|Semolina|0|4|37|48|37|68|43|50|144|58|n.a.|n.a.|
|Miscellaneous|4|2|6|6|7|7|7|0|0|0|n.a.|n.a.|
|Pasta|0|0|0|42|0|0|0|0|0|97|n.a.|n.a.|
|**Total**|**172**|**357**|**625**|**1,202**|**839**|**801**|**902**|**1,117**|**1,333**|**1,046**|**1,414**|**2,046**|
|_inpercent of GDP_||||||||||_1.1_|_3.3_|_2.0_|
|_inpercent of government expen_|_diture_|||||||||_2.0_|_4.8_|_3.8_|

Source: Data provided by Libya’s Price Regulation Fund, obtained from the Central Bank of Libya. * Data for 2011-12 are preliminary. For 2001-2010, the breakdown refers to the Price Regulation Fund’s operational balance, a proxy for the cost of subsidies to the government since the Fund is responsible for buying the commodities on the international market and distributing them to the cooperatives. A negative number therefore indicates an operational surplus for that particular commodity and year, which could be due to accumulated inventories from previous years.

Food subsidies vary between 39% and 96% of the market price and they are well above 80% for most products (Table 2). They are administered under a system of individual quotas regulated by the Ministry of Economy. Subsidized food products are made available in fixed per-capita quantities at cooperatives throughout the country, except for subsidized flour used to bake bread which is distributed to bakeries directly. Quotas are identical for all individuals, and have remained unchanged for more than a decade.

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