Economic Analysis
Libyan Arab Jamahiriya

Libyan Arab Jamahiriya

Population 6.4 million
GDP per capita 3,205 US$
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Country risk assessment
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Synthesis

major macro economic indicators

 

  2015 2016 2017(f) 2018(f)
GDP growth (%) -10.2 -17.2 15.8 20.1
Inflation (yearly average, %) 9.8 27.1 32.8 32.1
Budget balance (% GDP) -126.6 -102.6 -42.9 -23.3
Current account balance (% GDP) -52.5 -22.3 1.7 9.8
Public debt (% GDP) 42.3 34.5 32.1 30.8

Iranian calendar from March to March (f): forecast

STRENGTHS

  • Large gas and oil reserves Very low level of external debt
  • Strategic location on the Mediterranean near Europe

WEAKNESSES

  • Country split in two: the west is well governed by the Tripoli government recognised by the international community, the east is controlled by the government in Al-Beïda supported by Field Marshal Haftar.
  • The south of the country is suffering a proliferation in trafficking (human, weapons, drugs)
  • High inflation
  • Social tensions, political and tribal fragmentation
  • Adverse business climate

Risk assessment

Recovery in oil and gas production

The expansion in activity is mainly due to the increase in oil and gas production following the securing of the oil fields in the west and the reopening of a number of production facilities such as Sharara. Oil and gas production reached its highest level since 2014, with the 1 million barrels a day mark being reached in 2017. The country is the subject of a preferential agreement within OPEC that allows it to increase its production outside the quotas. Despite the obsolescence and the destruction of some of its infrastructures, Libyan production is expected to continue in 2018 at a similar level to that of last year. Although foreign companies are cautiously showing signs of being ready to return, the ever-present security problems risk slowing any such trend meaning that the FDI flows will remain very limited unless the political situation is settled and peace restored to the country. In addition, the non-oil and gas economy continues to suffer from shortages of resources and the ongoing security issues. Problems with replenishment, foreign currencies shortage and the black market have resulted in high prices, exacerbated by the removal of food subsidies. Inflation however is expected to stabilise. The growth in oil and gas exports will help reduce the currencies shortage. Two central banks operate and implement parallel policies, one in Tobruk linked with the National Union government, the other based in Al-Beïda. Closer links between the various protagonists and the scale of deterioration of the economic fundamentals is probably likely to encourage a reunification agreement between the two bodies. The pegging of the Libyan dinar to the SDR rate is expected to continue but a devaluation of the currency is planned by the Tobruk central Bank. The recovery in the oil and gas sector should however have positive knock on effects for the non-oil and gas sector.

 

Huge twin deficits

The decline in oil and gas exports severely disrupted the economic balance within the country and created a public deficit and a current account deficit. The restarting of oil and gas production should help the gradual elimination of the deficits in the medium term but this will remain dependent on finding a settlement to the political crisis and the measures to follow this. Although they were higher in 2017, budget revenues cannot cover the major structural expenditure. The wage bill in effect accounts for 33% of GDP, on top of which there are the costs associated with the energy subsidies. In addition, given that Libya imports 80% of its domestic consumption, the growth in exports will not make it possible to offset the large trade deficit.

 

Unending Libyan crisis

After a number of unfruitful mediation attempts under aegis of the United Nations, the Libyan crisis again seems to have entered another impasse. Undermined by the political discord arising in the post-Gaddafi transition, Libya is a divided country, split between lawless regions, areas under the control of tribal allegiances and a range of militias. The progress made with the Skhirat agreement signed in Morocco in December 2015 which led to the establishment of a transition government, has not produced a way out of the crisis. The legitimacy of the government led by Faïez Sarraj is disputed by that of Al-Beïda supported by Field Marshal Haftar. Whilst the former is recognised by the international community, the latter whose major supporter is a Field Marshal and head of the Libyan Liberation Army, retains military control of Cyrenaica (east). Following a number of discussions between the two parties during 2017, the appointment of a new United Nations emissary, Ghassan Salamé, presents one possible route towards a solution. The task is, to say the least, a difficult one but the objective of the Libya plan as submitted by Mr. Salamé will be to revise the Skhirat agreement so as to find areas of potential compromise between the two key factions. There are thus three core components to the plan: the creation of a constitution approved in a referendum, the holding of elections and a process of national reconciliation similar to that carried out in Tunisia. The Special Envoy could also reintegrate Libyan institutions such as the Central Bank, split in two. In December 2017, the HNEC, the Libyan Electoral Commission, launched the electoral list registration process for elections in 2018. The challenge for this election process will be for it to be accepted by all the parties involved in the crisis: the two governments in Tripoli and Al-Beïda, as well as former Gaddafists and Royalists. For the UN mediator, this requires a prior agreement by the key parties to accept the results of the vote, failing which no consensus can be achieved following the elections. This has become all the more pressing as the Libyan question has returned to the international agenda with the revelations around the trafficking of Sub-Saharan migrants in the region in 2017. The African Union, with the support of the European Union and the United Nations, is working jointly with the IOM, the International Organization for Migration, to implement a plan for the evacuation and repatriation of Sub-Saharan migrants to their home countries.

 

Last update: January 2018

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