The attack on Tripoli in early 2019 and the blockade of Libya’s major oil ports and terminals in January 2020 have together caused the most serious political, economic, and humanitarian crises Libya has faced since 2011. Libya’s economy was already slowing in 2019 with real GDP growth falling sharply to 2.5% from what seemed a promisingly steady recovery with record growth of 20.8% (on average) in 2017–2018. But, as military confrontation escalated in 2019/2020, oil production decreased—from 1.2 million bpd in December 2019 to 0.1 million bpd in April 2020—choking the country’s economic lifeline.
The Libyan economy has now been hit by four, overlapping shocks: an intensifying conflict, which suffocates economic activity; the closure of oil fields, which puts its major income-generating activity largely on hold; decreasing oil prices, which reduce income from surviving oil fields; and the COVID-19 pandemic, which further threatens the economy, with almost 3,500 cases and 75 deaths confirmed by August 2020.
Current Account and Foreign Exchange
In 2019, Libya’s current account continued to register surpluses for the third year in a row, largely due to the Central Bank of Libya’s (CBL’s) rationing its supply of hard currency for essential imports only, although higher hydrocarbon revenues also contributed to the surplus. Despite this surplus, by the end of 2019, foreign reserves had declined, and the dramatic drop seen since 2014 in foreign direct investments to Libya had also contributed to pressure on foreign reserves. Libya needs political resolution before economic reforms can be implemented to initiate private sector-driven growth and the generation of new jobs—the country’s only path toward sustainable, shared prosperity.
In the absence of improvement on the ground, the economic downturn will deepen. Libya’s inability, or curtailed capacity, to produce and export oil might well continue for the rest of 2020 because of the closure of its oil ports and terminals—it is expected to produce a daily average of only 0.17 million barrels of oil for 2020, less than one-seventh of 2019’s production. As a result, GDP is expected to shrink by 41% in 2020. The 2020 budget partially reflects this dire situation with a large, forecasted deficit, the highest in recent years. Likewise, the government’s current account is expected to run astronomical deficits in 2020; consequently, reserves will be further depleted.
Given the extreme volatility and unpredictability surrounding recent economic trends, it is not easy to forecast beyond the immediate future. After years of high inflation, the consumer price index (CPI) declined in 2019 as the exchange rate on the parallel market decreased. CPI fell by 2.2% over 2019, compared to a high average of 21.6% inflation over 2016–2018. Inflation picked up in the first two quarters of 2020, reaching 1.3% by April, as the conflict intensified, and shortages too.
Libya’s currency continues to suffer on the parallel market because of political uncertainty and macroeconomic instability. The official exchange rate of the Libyan dinar (LYD) against the US dollar stood at 1.37 LYD to US$1 in August 2020, having depreciated by 1.1% compared to August 2018.
The parallel exchange market often diverges from official rates but the introduction of the forex fee, while easing access to foreign exchange—especially for essential imports and family allowances—has allowed the steady convergence of the parallel and official, taxed exchange rates, bringing parallel market rates down from LYD/US$9.2 in 2017 to LYD/US$4.0 in 2019. The forex fee was reduced to 163% in August 2019, as the parallel exchange rate moved closer to the official, taxed exchange rate. Prompted by weak macroeconomic fundamentals, the lack of oil exports and decline of global oil prices, and restrictions on the sale of foreign currency imposed by the CBL, the Libyan dinar lost 54% of its value on the parallel market in the first half of 2020, reaching LYD/ US$6.17 in September 2020.
Libya Public Finance
The 2020 budget shows a huge deficit, due to high, rigid expenditure in a context of domestic and global health and economic crises, resulting in shocks to oil supply and demand. On March 20, the GNA adopted a budget for 2020 with an underlying deficit of LYD 29.2 billion (19.3 billion for Tripoli and 9.9 billion for Beyda), representing 90.6% of GDP, the country’s highest deficit ever. The budget estimated LYD 19.2 billion in total revenue for 2020 (59.5% of GDP), almost a third of last year’s share. Only LYD 6 billion is expected to come from the proceeds of oil, less than fifth of what they were in 2019. Projections for non-oil revenue (LYD 3.2 billion) seem overly optimistic given the dire political, social, and economic context and weak administration of customs and tax revenues. Public finances are expected to improve slightly but the inflexibility of current expenditure and volatility of oil revenue place the country’s overall fiscal stance under severe stress.
Last Updated: Oct 01, 2020
