Economic studies
Libyan Arab Jamahiriya

Libyan Arab Jamahiriya

Population 6.2 million
GDP per capita 6,671 US$
E
Country risk assessment
D
Business Climate
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Synthesis

major macro economic indicators

  2013  2014 2015 (f) 2016 (f)
GDP growth (%) -13.6 -24.0 -6.4 -6.0
Inflation (yearly average) (%) 2.6 2.8 8.0 9.2
Budget balance (% GDP) -4.0 -43.5 -79.1 -63.4
Current account balance (% GDP)  -0.2 -26.5 -69.4 -56.6
Public debt (% GDP) 3.3 39.3 50.5 46.5

 

(e) Estimate (f) Forecast

STRENGTHS

  • Extensive oil and gas reserves (estimated respectively at 76 and 94 years of "normal" production).

WEAKNESSES

  • Economy highly concentrated and dependent on the oil and gas sector
  • Extremely uncertain political transition together with critical security problems
  • Very difficult business climate
  • Lack of modernisation of the economy and the banking sector

Risk assessment

The country is gradually sinking into chaos despite the 6 December agreement

The political situation in Libya has been unstable since the fall of the Gaddafi regime in August 2011. The internal security chaos has been leading to an institutional crisis following the annulment by the Libyan Supreme Court of the election of the House of Representatives. Since then Libya has had two governments and two parliaments. On one hand, the Council of Deputies (CDR), recognised by the international community, sits in Tobruk, in the far east of the country. On the other hand, the General National Congress (GNC) in Tripoli, this is under the control of the coalition of the “Libya Dawn” militias, and controls Tripoli. The country is also threatened by jihadists following the arrival of Daesh in the province of Sirte. This latter aims to make Libya its fall back area as the strikes against it intensify in Iraq and Syria, and it controls almost 25% of the country and represents a threat to its integrity. Following a number of failed attempts at dialogue under the auspices of the United Nations, the two governments reached an agreement in Tunis on 6 December. It is hoped this agreement will allow the formation of a transitional government. A committee of ten, including five appointed by the GNC and five by the CDR, will appoint a Prime Minister. Two Vice Presidents from the two bodies will also work with the formation of the transitional government. Whilst this agreement seems to be a first step towards a solution to the Libyan crisis, Libya remains a land split into lawless areas, areas under tribal control and a proliferation of militias.

 

An economic crisis with long term repercussions

The future of the Libyan economy depends on a recovery in oil and gas production which has suffered since 2014 in the country’s worsening security and political situation. Oil and gas production represented 65% of GDP in 2014 and has been shrinking since the start of the civil war, dropping from 1.7 Mb/d in 2010 to 0.4 Mb/d in 2015. In 2016, economic growth will be characterised by an extreme volatility created by fluctuating oil and gas production. The low price of Brent crude in 2016 will also limit the contribution made by oil and gas exports to economic activity resulting in reduced export income. The fighting between the numerous militias controlling various parts of the country are causing lasting damage to the oil and gas infrastructures and further delaying any prospect of a return to the production levels of 2010. Problems of obtaining and moving supplies as well as scarcity are putting inflationary pressures on foodstuffs, property prices and transport costs. These pressures which are generally relieved by high levels of government subsidies on food, fuel and electricity could further increase if the subsidy reform sought by the central bank becomes reality.

 

Massive twin deficits and growing sovereign risk

After accumulating large financial reserves, Libya is now facing serious budget deficits. The acute reliance of public finances on the oil and gas sector has resulted in a collapse in budget receipts as oil and gas output has contracted. In a bipolarised political context, the central bank has retained responsibility for the country’s budgetary and monetary policy, allocated to each government, a share of the available financial resources. Faced with shrinking receipts, the central bank continues to finance what remains of the public institutions and services by digging into the large currency reserves built up during the Gaddafi regime. These reserves are however being rapidly exhausted, dropping from 111 billion in 2012 to less than 40 billion in 2016 based on IMF projections. The central bank will be looking at measures aimed at reducing budget spending with a reform of the system of subsidies in 2016. Such measures will however have an impact on living standards of households already seriously suffering in the political and security crises.

The recourse to loans from commercial banks has resulted in a significant increase in the level of public debt. The sovereign debt risk is increasing as the debt increases and the reserves are exhausted. The funds of the Libyan Investment Authority, estimated at 67 billion dollars in 2015 have been frozen by the UN Security Council whilst awaiting a solution to the political crisis.

The decline in oil production, the low price of Brent crude and problems in accessing the harbour facilities have driven down export income from USD 60 billion in 2012 to USD 5 billion in 2015, with the requirements in terms of imported goods remaining unchanged. The damage to oil and gas installations will prevent any medium term improvement in export volumes. The current account deficit is also expected to grow in the coming years.

 

 

Last update: January 2016

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