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Overview

Recent Developments & Prospects

Macroeconomic Policy

Fiscal Policy

Monetary Policy

Economic Cooperation, Regional Integration & Trade

Debt Policy

Economic & Political Governance

Private Sector

Financial Sector

Public Sector Management, Institutions & Reform

Natural Resource Management & Environment

Political Context

Social Context & Human Development

Building Human Resources

Poverty Reduction, Social Protection & Labour

Gender Equality

Thematic analysis: Structural transformation and natural resources

Authors: Sahar Rad, Samia Mansour

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  • Oil production fell during the first half of 2014 and GDP declined by 19.8%, but production levels began to recover during the third quarter of 2014, so GDP is expected to rebound by 14.5% in 2015, if agreement is achieved to open some of the major oil terminals.
  • Political and economic governance have collapsed, with the presence of two rival parliaments and continued control of oil resources by warring militias.
  • Spatial disparities were at the heart of the instabilities that have surfaced since 2011 and an inclusive spatial strategy will be an important determinant of any democratic transition.

During the first half of 2014, mounting protests at major oilfields and export terminals led to a decline in production levels to as low as 155 000 barrels per day (bpd) by May 2014. Since hydrocarbons sales constitute over 95% of national revenues – and this decline in production is well below the country’s long-term average of 1.6 million bpd – there is considerable pressure to negotiate with the militias controlling the main oil terminals. After an agreement to open some of the major terminals, official production started to recover from the third quarter of 2014, reaching 800 000 bpd in October 2014. However, fighting has closed the two largest ports, Es Sider and Ras Lanuf, while the western ports of Zawiya and Mellitah have also halted oil exports.

Fiscal sustainability continues to be in disarray because control over the major source of revenue has fallen out of official control. The combination of lower petroleum exports and the dramatic fall in the price of oil resulted in revenues down by 63% in 2014 (from a budget of 57 billion Libyan dinars (LYD) in 2013 to LYD 20.9 billion in 2014). The Central Bank of Libya (CBL) announced a budget deficit of LYD 25.1 billion (USD 20.9 billion) for 2014, around 49.1% of GDP. The 2015 budget deficit would decrease to 29.6% of GDP and financing the fiscal gap will be difficult as oil exports are not expected to recover any time soon. The instability in the governance structure, precariousness in the management of oil revenues and the growing division between the government and the CBL, meant that the 2014 budget was never approved. The CBL has been allocating essential expenditure to cover only the yearly  publicsector salaries (LYD 23 billion) and subsidies (LYD 14.5 billion). All other ministerial expenditures are suspended until a legitimate government is formed.

Economic prospects depend on the political and security situations; the expected recovery in oil production could once again be derailed if they do not improve. The election of the House of Representatives (HoR) in June 2014, to replace the General National Congress (GNC) formed after the overthrow of the Qaddafi regime, has further deepened the country’s political divisions, with the various regional and tribal militias aligning themselves more closely with one or another parliament. With neither the militias nor the two governments having full coercive power, a security vacuum has emerged, undermining any form of economic activity and, in turn, highlighting the dire need for a broad-based process of political reconciliation.

The issue of spatial inclusion is at the heart of the volatile transition that Libya has experienced since the 2011 revolution. In fact, spatial exclusion, at various socio-economic levels, has undermined any form of national solidarity required for a move towards post-revolution democratic governance. The legacy of colonialism was the creation of an ethnically, tribally and socio-politically heterogeneous country, over which the Qaddafi regime had maintained control through force instead of a strategy of inclusion. Post-2011 Libya has therefore witnessed the rise of geographical, tribal and ethnic tensions. A resolution to such disparities and a process of national dialogue would be key elements of a  successful political and economic transition.

Table 1: Macroeconomic indicators

 20132014(e)2015(p)2016(p)
Real GDP growth-13.6-19.814.56.3
Real GDP per capita growth-14.3-20.713.55.1
CPI inflation2.62.62.72.9
Budget balance % GDP-6.2-49.1-29.6-14.8
Current account balance % GDP13.6-23.3-17.5-6.6

Source: Data from domestic authorities; estimates (e) and projections (p) based on authors’ calculations.

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