At the turn of this decade, several crises emerged from internal and external factors leading to severe inflation, growing direct subsidy to some goods, and indirect subsidies through overvalued currency and special exchange rates.

As a result, those developments unfolded two inflationary paths. The first represented explicit inflation which is linked to prices of goods and services, whereas the second reflected implicit inflation which is related to decisions regarding price controls being implemented through applying special exchange rates. Also, total subsidy, of which 50% reach the rich a declining share is destined to the poor.

Although subsidization has had positive effects on the poor, it has negatively impacted the economy. Hence, reform policies have focused on gradually reducing subsidies in the early stage of 1995-97, while moving in the second stage of 1998-2000 to totally liberalize all prices to match world prices.

The implementation of the economic reform policies and procedures have resulted in both positive and negative outcomes. On the positive side, there has been an increase in public revenues and in domestic production. Imports have been rationalized, smuggling has been contained, trade and prices have been liberalized, and the interventionist role of the state and it’s influence on external balances have been limited. Also, there has been an impressive decline in inflation rates and a reduction in price distortions.

However, on the negative side, real wages and incomes have been declining as a consequence of increasing costs and prices of locally produced goods and their imported inputs. Persistent recession and growing unemployment as well as lower demand for goods and services were also obvious characteristics of the era.

Moreover, the livelihood of the majority of the population has been worsening and the poverty circle has been expanding. Middle-income group disappeared and many of the population and labor characteristics have been also changing. Property rents for the minority rich increased at the expense of a declining share for wages and salaries accruing to the majority of the population. Demand for food imports and oil derivatives grew considerably, while illicit trade continued undeterred. Finally, local production and non-oil exports have not improved, in contrast to the objectives of the Reform Program.

However, many remarks in this respect are worth mentioning. Administrative reform has not been complementing price adjustments. Corruption is still widespread and the economy is unable to mobilize various economic capabilities. Also, other important imbalances have been neglected, giving the impression that the reforms concentrate only on revenue collection policies rather than correcting ones. Furthermore, the social dimension has been also undermined by delaying the establishment of an effective social safety net, which remains an objective only on papers. Such neglect contributed to a general feeling against reforms. Similarly, while resolving current imbalances, secondary impacts have not been looked at on equal footing, hence causing further imbalances that would be faced in later stages.

Last but not least, and in order to rationalize what remains of the liberalization policies and procedures, the study recommends the following:

Reschedule and reconsider percentage changes in price adjustments of the remaining subsidized goods and services, giving priority to those yielding more revenue but less harm to the majority of the population.

Link between forthcoming procedures and the extent of absorption of past procedures.

Speed up the setting and operation of the social safety net.

Link the implementation of remaining policies and procedures to achievement targets in growth rates, income level, employment and investment.

Divert the major portion of proceeds from price liberalization to development efforts and to improve incomes through the social safety net, rather than towards recurrent spending which would lead to recurring crises as soon as the first program reaches termination.

Consider a base year program for reforms to enable resolving many aspects that were not addressed in the current program, including provisions for attracting investments.

Bring the program out to the open in order to attain as much support and acceptance as possible.

The remaining part of the program should contain a series of options and alternatives that aim at rationalizing forthcoming policies and procedures as well as minimizing their negative effect.