Energy Versus Food Subsidies Reforms

In addition to their investigation of energy products, some of the researchers who contributed to this book were able to consider a limited set of food products in selected countries. The list of food products and countries that administer food subsidies is, however, not complete. For example, Egypt and Tunisia are two countries that administer food subsidies, but the case studies dedicated to these countries focused on energy subsidies only. Still, the evidence of asymmetry in reforms between energy and food items is clear. The subsidies reforms we observed have been largely on energy products, and virtually all governments had a clear preference for postponing or avoiding food subsidies reforms. This choice is partly explained by the fact that energy subsidies weigh more on the government budget than food subsidies (but not true for Libya), and the resistance to this type of reform often comes from fear of hurting the poor and the middle class and causing social unrest. Also, food subsidies are thought to work better than energy subsidies as social protection mechanisms because they tend to be allocated to primary food products largely consumed by the poor and there is also a nutrition angle to consider that may be important for the poorest countries. For example, Libya in 2010 and Egypt in 2014 opted to increase food subsidies while trying to reduce energy subsidies.

But in other cases countries have successfully removed food subsidies (edible oil in Morocco in the early 2000s and edible oil, tomato paste, tea, and dry yeasts in Libya in the mid-2000s) with marginal impact on welfare, no compensation, and no social implications. Therefore, countries in the MENA region showed a clear preference for reforming energy subsidies as opposed to food subsidies but history shows that it is possible to reform food subsidies with moderate social consequences.