Who Will Pay the Political Cost of Cutting Subsidies?


Facing severe economic recession and hyperinflation, the government’s sole response was to put in place a subsidy program, covering medicine, fuel, and some 300 other products. LIMS has been explaining that subsidies are counterproductive and has led to large-scale smuggling and squandering of the remaining dollar deposits seized by the central bank. The success of this campaign on one hand, and the dwindling usable reserves on the other, made the subsidy program hard to maintain. However, lifting subsidies is politically unpopular as it will lead to an increase in the price of gasoline, food, and medicine. The caretaker government attempted to pass the hot potato to parliament, but the latter sent it back, insisting that it is the duty of the government to perform this task.

As a solution to the deadlock, LIMS advocated replacing the subsidy program with cash transfers. LIMS has assisted the Ministry of Economy and Trade in designing a quasi-universal basic income (quasi-UBI) program that would cost 80% less than the current subsidies program. Unlike current subsidies, the quasi-UBI program would effectively alleviate the weight of the economic crisis, while saving around 10 Billion US dollars over the next 5 years. Alternatively, a direct cash transfer program to the most impoverished families would also provide a cost-efficient solution.

LIMS Media Interviews:
●    Urgency To Reform Subsidies Disappears, As The State Continues To Evade The Problem, January 6, 2021: Ahwal Media, Article AR