cash transfers to the poor to compensate for their losses in subsidies revenues, the cost for the government would be much lower.

**Table 13 – Scenario I – Elimination of Subsidies, Main Results (Direct effects)**

||**Pre-Ref**|**Post-Ref**|**Change**|
|---|---|---|---|
|Welfare (per capita)|17,420|16,852|-568.8|
|Poverty (%)|4.155|5.246|1.091|
|Inequality (%)|42.433|43.276|0.843|
|Subsidies (in millions)|18,944|0.000|-18,944|
|Transfers (in millions)|0.000|10,397|10,397|
|Total budget(in millions)|18,944|10,397|-8,547|

Source: Authors’ estimations from household budget survey data In order to better understand the trade-offs between the gain in terms of government revenues and the losses in terms of poverty increases of subsidies reforms, Figure 3 shows the increase in poverty (leftpanels) and the impact on government revenues (right-panels) of price increases between 1% and 100% for all products considered. Note that these price increases may not be realistic and even above the increases necessary to eliminate subsidies. The only purpose of this exercise is to show which product is the most promising in terms of positive impact on government finances while maintaining poverty low. The top panels illustrate food products, the middle-panels petroleum products and the bottompanels water and electricity.

Concerning food products (top panels), increasing the prices of flour results in larger poverty increases as compared to sugar but this is true up to increases of about 40% (top-left panel). After this threshold, it is sugar that becomes more poverty increasing. In terms of government finances (top-right panel), increases in prices of flour provide more government savings than increases on sugar all along the price increasing spectrum. Hence, there is clearly a trade-off here. If the government increases prices of flour, it will gain more than increasing prices of sugar but the cost for poverty will also be higher than increasing prices for sugar. This is true up to price increases of 40%. After that, a good strategy is to continue increasing prices for flour while maintaining prices of sugar as sugar becomes more costly in terms of poverty increase while flour continues to be superior in terms of government savings.

Petroleum products are simpler to interpret (middle-panels). The only poverty increasing product is LPG given that diesel is not really consumed by households and given that gasoline has no subsidies (middleleft panel). However, increasing prices of gasoline and diesel further can increase government savings. Therefore, it would be a good strategy to keep LPG subsidies while financing these subsidies with further increases in gasoline and diesel prices (from a purely poverty-savings perspective). However, we saw that LPG is pro-rich while Figure 3 (middle-right panel) shows that the largest savings would be made with the increase in LPG prices. Thus, if we consider direct effects only as we do in this section, increasing gasoline and diesel prices alone is not sufficient to fix government finances and the government will have to address the large subsidies currently allocated to LPG.

The picture is even simpler with electricity and water (bottom-panels). Increases in electricity prices are much more promising for government savings than increases in water prices (bottom-right panel) but they also have a much greater incidence on poverty. What is noticeable here is that price increases of electricity beyond 60% bring very little additional government revenues (households start to consume much less) while poverty would continue to increase steadily. Hence, the reform of electricity subsidies is quite complex and needs to take into account the elasticity of consumption to price increases as well as the tariffs’ brackets. Of course, the price increases that are considered in reality, for example the 2014 18