Libya hopes to reform its subsidy programme for fuel and goods, phasing them out by the middle of 2016.

Economy Minister Mustafa Abufunas, outlined his ministry’s plans for reforms, speaking at a conference on the shadow economy in Tripoli.

The Economy Ministry has carried out several subsidy reform studies, working with the Washington-headquartered IMF and World Bank, and is now proposing reforms that would substitute subsidies on food and fuel with cash grants for approval by the General National Congress (GNC), according to the local Libya Herald.

At LD10.6bn ($8.5bn), subsidies account for about 16 per cent of Libya’s total 2013 budget of LD66.9bn. The IMF criticised Libya’s current system in a report in April, highlighting that subsidies were typically captured by higher-income households, diverting resources from the poor.

Given the sensitivity of the fuel subsidies, Abufunas said removing them could not be done in a single phase. Instead, the ministry plans to slowly remove them in three phases over 30 months. Implementing the reforms should be made easier with the issuance of new nation identification numbers, and would help Libya fight corruption and smuggling, while reducing the burden on the state budget.

However, the ministry has decided it will not end subsidies on power consumption, which does not face the same problem of smuggling.