The cost of the political conflict has taken a severe toll on the Libyan economy, which has remained in recession for the third consecutive year in 2015. Political strife, weak security conditions, and blockaded oil infrastructures continue to constrain the supply side of the economy. Production of crude oil fell to around 0.4 million barrels per day (bpd) or the fourth of potential. The non-hydrocarbon output remained weak due to disruptions in the supply chains of both domestic and foreign inputs, as well as lack of financing. In this context, GDP is estimated to have declined by 10 percent and per capita income has fallen to less than US$ 4,500 compared to almost US$ 13,000 in 2012. Inflation strongly accelerated last year driven by high food prices. Lack of funding to finance imports, especially subsidized food, generated chronic shortages in basic commodities and expansion of black markets activities. This situation was exacerbated by households attempting to stockpile food. Inflation averaged 9.2 percent in 2015, mainly driven by a 13.7 percent rise in food prices. Prices of flour and bread quintupled.
Protracted political standoff, coupled with lower international oil prices and generous subsidies have weakened public finances and external position. Budget revenues from the hydrocarbon sector have fallen to only a fifth of their pre-revolution levels, while spending has remained high. The share of the public wage bill in GDP is astronomic (around 60 percent), mainly reflecting a plethoric public sector. Meanwhile, investments have been insufficient for sustaining adequate public provision for health, education, electricity, water and sanitation services. However, savings have been realized on subsidies thanks to tougher control of the supply chains of subsidized products and lower import prices. Overall, the budget deficit rose from 43 percent of GDP in 2014 to more than 75 percent of GDP in 2015. Being highly dependent on hydrocarbon exports and food imports, Libya’s balance of payments suffered in 2015. Representing 97 percent of total exports, oil receipts are estimated to have declined to less than 15 percent of their 2012 level. Meanwhile, consumption driven imports remained high. As a result, the current account swung from balance in 2013 to a deficit estimated at around 76 percent of GDP in 2015. To finance these deficits, net foreign reserves are rapidly being depleted.
Improvement of the economic outlook depends crucially on the endorsement by the House of Representatives of the Government of National Accord (GNA) formed under the auspices of the UN. The economic and social outlook assumes that the GNA is eventually empowered to restore security and launch a comprehensive program to rebuild the economic and social infrastructures. In this context, GDP is projected to increase strongly in 2016. However, the twin deficits will prevail as oil revenues will not be sufficient to cover the high budget expenditures and consumption-driven imports. Over the medium term, as oil production returns to full capacity, growth is projected to rebound at two digit growth rates in 2017 and 2018, before stabilizing thereafter between 5 and 6 percent.
Libya Public Finance
Figure 1 below provides a snapshot of 2012-2015 Libyan national budget. During the 2010-2013 period, the executed budget did not typically exceed the overall amount authorized by parliament, but its composition substantially differed from that of the approved budget. The overall rate of budget execution was around 80 percent in 2010 and 2012 and was about 93 percent in 2013. There has been no approved (official) budget over the past two years (2014-2015). In FY2012, development budget spending accounted for slightly more than 52% of all government spending, with wages and salaries comprising 24%. However, over the past several years, development spending has virtually collapsed, comprising an estimated 15% of total government spending in FY2015, down from a budgeted 52% of total budget spending in FY2012.
Although several budgets have been presented by the Tripoli Administration and the HOR (Tobruk, Eastern Administration), the Central Bank of Libya (CBL) did not acknowledge any budget as being the legal, legitimate Libyan budget for FY2015. In effect, neither the budget submitted by rival Parliaments in Tripoli and in the Eastern city of Tobruk have been recognized. The Central Bank of Libya (CBL) has only disbursed funds regarding wages and salaries (Chapter 1); student scholarships abroad; oil/gas sector development; electricity (chapter 3); and, essential subsides items (Chapter 4).
Immediate challenges are to manage fiscal spending pressures while restoring and improving basic public services. A longer term goal is to help develop the framework and institutions for a more diversified market-based economy, broadening the economic base beyond the oil and gas sector. Although the Bank’s post-conflict engagement was initially expected to accompany only Libya’s short term economic recovery efforts, the transition program will lay the foundation for longer term goals. This includes creating a more vibrant and competitive economy with a level playing field for the private sector to create sustainable jobs and wealth. It also includes transforming the management of oil revenues to ensure they are used in the best interests of the country and to the benefit of all citizens equally. This will also ensure that citizens have a role in defining and voicing their communities’ best interests.
Last Updated: Mar 31, 2016