major macro economic indicators
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(e): Estimate (f): Forecast
- Gas and oil reserves (the largest in Africa)
- Very low external debt
- Large foreign exchange reserves, sovereign wealth fund
- Strategic position in the Mediterranean, proximity to Europe
- Extreme dependence on hydrocarbons (48% of GDP)
- Economic and financial fragmentation superimposed on political and tribal divisions that fuel insecurity
- Division of the country: West-East split, active armed groups, foreign interventions (Turkey, Russia, Emirates, Egypt, etc.) and mercenaries
- Fezzan vulnerable to the proliferation of trafficking (human, arms, drugs) and animosity between Tuaregs and Toubous
- Corruption, weak governance, poor public services
- Damaged health, education and electricity infrastructure
- Selective access to foreign currency for importers
Very unstable and fragile political environment
Libya has experienced two civil wars since 2011, which have weakened the state and led to the formation of tribal-based armed factions. The first war in 2011 led to the overthrow of Colonel Gaddafi after 42 years of autocratic rule. The second was launched in 2014 by the self-proclaimed and motley Libyan National Army (LNA) led by Marshal Haftar, first against the Islamists, then quickly, in association with the House of Representatives elected in 2014 and based in Tobruk, against the internationally-recognised government of El-Sarraj based in Tripoli. During a Russian- and Egyptian-backed Haftar offensive in 2019 on Tripoli, Turkey indirectly intervened in early 2020, which brought back some balance of power. This second war ended with a UN-brokered ceasefire in October 2020, which endorsed the formation of a Government of National Unity (GNU). The GNU was intended to be an interim government until the general elections could be held in late 2021. Their postponementsine diehas resulted in the coexistence of two authorities fighting over control of the country: the GNU led by Abdelhamid Dbeibeh and the High State Council based in Tripoli (West), and the National Stability Government (NSG) based in Sirte (East), led by Fathi Bashaga, and supported by the House of Representatives.
Several consequences have emerged from this institutional schism. First, the rival governments have difficulty asserting their sovereign competence, particularly with regard to the security of goods and people. All the stakeholders lack legitimacy in the eyes of angered Libyans, who are battling with weaker purchasing power, infrastructures and public services. Although small in size, the population has grown rapidly in recent years and high youth unemployment is exacerbating the general mood of frustration. The exploitation of hydrocarbons and the distribution of associated revenues is a key issue as the sector accounts for more than two-thirds of Libya’s GDP. Since 2011, political stakeholders have lost partial control over the key tools of the economy. For example, the National Oil Corporation, the national oil company, seeks to distance itself from the conflict and the sovereign wealth fund controlling USD 65 billion in assets is still frozen under international sanctions. Libya is set to remain on the diplomatic agenda in 2023: European countries maintain links with both sides to control migration and facilitate oil exports, Turkey seeks to acquire offshore concessions from Tripoli in return for arms, and many other countries are interfering as well. Last, political instability, sporadic fighting and the international theme shaping the conflict are feeding into and undermining the credible introduction and rollout of future institutional reforms.
Economy dependent on oil and security conditions
After production disruptions in the oil crescent in the summer of 2022 by forces loyal to the GNS over disagreements about the distribution of oil revenues, even a slight rebound should mechanically support growth in 2023, provided that the lull in the showdown is able to be maintained, thereby enabling operations to continue. Production is expected to rise from a low of 0.6 million barrels a day in the summer of 2022 to 1.25 million a day in 2023. This will affect goods exports, of which more than 90% are hydrocarbons, as well as state revenues. Public investments were announced by the GNU in late 2022, such as the renovation of the Sirte-Waddān road and the airports of Tripoli and Misrata. Apart from the Bahr Essalam offshore gas project with Italy's Eni for USD 8bn of investments confirmed in late January 2023, international companies are not expected to engage in the exploration of new fields in 2023, with majors such as Repsol and OMV limiting themselves to the exploitation of their existing concessions. Despite Libya’s reconstruction needs, other sectors will attract little or no FDI and they will be pushed back by a poor business environment. Structural dependence on foreign consumer goods will continue to generate high imported inflation that is being aggravated by the black market and price stickiness.
Surplus accounts thanks to oil
In the short term, the political instability dogging Libya is expected to thwart the development of the oil and gas sector, and thus affect government revenues. According to the World Bank, recent statistics and credible forecasts are difficult to obtain under these conditions. Political instability is also harming the collective resources that are omnipresent in the economy: a public wage bill that is among the highest in the world (33% of GDP), subsidies (25% of the budget), sharing of the revenues of the national oil company (70% of local production) between the two opposing sides. The Tripoli-based Libyan Central Bank, which centralises oil revenues, remains under the control of the GNU, but the forces in the East have established their own monetary authority. Disputes over budget approvals echo the continuing division in the financial system. Lack of payment liquidity in the East is collateral damage of this conflict.
Leaving aside the political situation, the current account surplus is expected to remain on a downward trend due to a narrowing of the trade surplus, explained by a growing population and reconstruction needs, with an (uncertain) increase in the volume of hydrocarbon exports mitigated by slightly lower prices. The primary income balance is still affected by the freezing of dividends and interest from the Libya Investment Authority (sovereign wealth fund) since 2018.
Last updated: April 2023