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How is Libya Reacting to Low Oil Prices?

The country is struggling with civil war, two governments (the Tripoli-based government (General National Congress (GNC)) and the Tobruk-based government (Elected parliament), insurgencies in oil fields, and low oil prices. Libya relies on oil for 98 % of its exports and fiscal revenues (Figure 8). The Tripoli-based government produced 500,000 barrels of oil a day in 2015 and exported almost 450,000 b/d. Two separate budgets were approved in 2015: the Tripoli based government approved a budget of about 42.9 billion LYD with exports of half a million b/d of oil (more than half of its exports in 2012) with a price of $50 a barrel. Public sector wages and salaries and food and fuel subsidies constitute more than half of the spending in the budget. As the pressure from low oil prices kicked in, the GNC decided to reform the huge food and fuel subsidies, replacing them with monthly cash transfers in the amount of 50 Dinars ($36.5) for each citizen. But the idea was rejected by the Parliament.

In response to low oil prices, some austerity measures have been taken, but at the same time the government is rewarding public employees in the education sector with 300 Dinars ($219) in extra pay. Public sector wages and salaries, and subsidies account for half of the government’s expenses. The fiscal deficit has reached a record high, estimated at 60 % of GDP in 2016. The Tripoli government has resorted to the Central Bank’s reserves which have been falling to $70 billion in 2016 from $120 billion in 2012. If the trend continues, Libya will run out of reserves in less than 4 years. The rival government in Tobruk resorted to borrowing from the Central Bank. The Libyan Dinar is under significant pressure from low export revenues due to cheap oil and lower oil production and the international sanctions on exportation of dollar currency to Libya since 2013. The Libyan Dinar is traded at the black market rate for almost three times the official rate at the Central Bank.