Given its high reliance on hydrocarbon activities, the performance of the economy remains strongly affected by security conditions, especially around the main oil fields and terminals. Improved political and security arrangements in the latter half of 2017 had allowed Libya to more than double its production of oil and to register record growth last year (up 26.7 percent) after four years of recession. But this dynamic has not been sustained over the first half of 2018. In fact, oil production stagnated around 1 million barrels per day (bpd) over the first 5 months before abruptly dropping to only 0.7 million bpd in June following the attack and temporary control of the oil fields and terminals in the East by militias, which badly damaged oil infrastructure and oil reservoirs. If the authorities can fix the damaged oil infrastructure over the second half of the year, it is expected that GDP will grow at 7.2 percent in 2018, driven on the supply side by higher oil output that could recover to around 1 million bpd by end 2018, and on the demand side by higher government expenditures and investment.
Although declining, inflation remains high, reflecting market disruptions due to supply shortages of goods and services along with still very active parallel currency exchange market. The consumer price index increased by 17.6 percent over the first 4 months of 2018 (vs. 26.9 percent, the same period last year). Due to the relative improvement of the exchange rate in the parallel market induced by increased supply of foreign currency through the official rate, inflation is expected to slow to around 15 percent for the year. Nevertheless, the cumulative inflation over the last four years has adversely affected Libyan households, which have lost almost 80 percent of their purchasing power. This has almost certainly pushed more Libyans into poverty and hardship and worsened inequality.
Libya Public Finance
Public finances are expected to improve slightly but the inflexibility of current expenditures and volatile oil revenues keep the overall fiscal stance under severe stress. Oil revenues are expected to significantly improve this year (47 percent of GDP), yet they will barely suffice to cover the high and increasing wage bill, which will hit 48 percent of GDP. The rising wage bill reflects both salary increases and additional hiring, which in turn are linked to pressure on the public payroll as a stabilizing instrument in a context of multi-factional conflict. Concerns over use of public payroll to pay for militias has prompted the call for the audit of the two Central Banks (The Bank has provided comments at the UN’s request on the TOR for the proposed Audit of the two Central Banks; and has additionally submitted comments to UN and GOL on the proposed new economic reforms below). Subsidies will remain high (10.6 percent of GDP) given the complex political economy that delays the needed reform of the system. The budget deficit, while slightly improving, will remain high at around 26 percent of GDP in 2018 (34.5 percent of GDP in 2017). The deficit is expected to be financed through cash advances from the Tripoli Central Bank and issuing of government bonds in the East.
The balance of payments deficit reflects the large public-sector deficit and the economy’s heavy reliance on imported consumption and intermediate goods, including refined fuel. This will transform the small current account surplus registered in 2017 (2.5 percent of GDP) into a deficit of around 3 percent of GDP this year. Foreign reserves will stabilize as selected foreign investment in the oil sector and elevated oil prices will cover most of the current account deficit, allowing the Central Bank to stave off further drain on reserves.
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 several years (2014-2018). The GNA has recently approved a unified national budget, however the HOR has failed to adopt/approve this budget legislation. Of note, over the past several years, development spending (capital investment) in Libya has virtually collapsed, comprising an estimated 1o% of total government spending in FY2018, down from a budgeted 52% of total budget spending in FY2012.
Immediate challenges with respect to fiscal planning include how 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. The Bank’s post-conflict engagement 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: Apr 01, 2019