Libya

Libya Economic Monitor, Spring 2021

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EXECUTIVE SUMMARY

Libya entered 2020 as a divided nation, with competing political and military factions operating redundant and often conflicting systems of governance. The Government of National Accord (GNA) controlled the country’s western regions around the capital Tripoli, while the Interim Government (IG), backed by the Libyan National Army (LNA), controlled most of the eastern, central, and southern parts of the country. The separate controlling bodies operated on separate budgets. The Central Bank of Libya was divided into parallel branches with Central Bank of Libya in Tripoli controlling the country’s money supply and foreign reserves, with the branch in the east mimicking the central bank’s currency printing function. The National Oil Corporation, based in Tripoli, is solely responsible for oil exports; but the Petroleum Facilities Guard, which secures the country’s oil assets, is divided into rival western and eastern forces.
For the most part of 2020, the performance of the Libyan economy was the worst in recent records. In January 2020, a blockade of oil terminals and oil fields began that lasted nine months, cutting oil output to about 228,000 barrels per day. This was less than one-sixth of 2019 values and comparable to the lows experienced subsequent to 2014 after the country’s civil war. The impact of the blockade, however, was felt with greater immediacy. For the acutely undiversified Libyan economy, which counts on oil and gas for over 60 percent of aggregate economic output and over 90 percent of both fiscal revenues and merchandise exports, the results were debilitating. “Lost” revenues from the blockade amounted to around US$11 billion for the year, according to the Central Bank of Libya in Tripoli.
Altogether (including the non-oil effects of the oil blockade), total fiscal revenues stood at Libyan Dinar (LYD) 23 billion in 2020, according to the Ministry of Finance in Tripoli, some 40 percent of total revenues earned in 2019. These problems were also conflated by the COVID-19 pandemic, which inflicted further economic and social dislocation on a war-torn country with little health related infrastructure and few basic health services.

The plunge in oil revenues sharply reduced government spending. The Tripoli-based government cut total expenditures by 22 percent from LYD 46.1 billion in 2019 to LYD 36.2 billion in 2020, with wages and salaries accounting for the bulk of expenditures—LYD 21.9 billion or 61 percent. GNA announced a decision to cut the salaries of highranking political officials by 40 percent starting in January 2020, and that of all public sector employees by 20 percent starting in April 2020, but it is not clear whether these decisions were implemented or not.
Subsidies, including those for fuel, electricity, water and sewage, sanitation, and medical supply reached LYD 5.6 billion, or 16 percent of total expenditures.
Development expenditures were minuscule for the year, LYD 1.8 billion or five percent of total expenditures, compared to LYD 4.6 billion in 2019. All capital expenditures projects for 2020 were essentially canceled.
Starting in mid-September, growing signs of rapprochement between political/military factions brought much-needed relief to the economy, albeit an inadequate one. With a ceasefire agreement between the Government of National Accord (GNA) and the Libyan National Army (LNA) in October 2020, oil production and exports rebounded.
Al Sharara and El Feel oilfields restarted production and the Sidra and Ras Lanuf ports reopened, enabling the National Oil Corporation to quickly ramp up oil production to 453,000 barrels per day in October,

1.108 million barrels per day in November, and 1.25 million barrels per day in December. On average, the oil production in 2020 is estimated at 405,000 barrels per day, roughly a third of actual output in 2019 and under a fourth of the highest output in the last decade reported at 1.7 million barrels per day.

Overall, the 2020 contraction of the Libyan economy is estimated at about 31 percent. The precipitous fall in hydrocarbon output damaged the country’s external balance and fiscal position in 2020, filtering through to weaker government spending, reduced private consumption, and lower imports.

The economic collapse also had adverse effects on the non-hydrocarbon economy. Water shortages were prevalent, with reports of sabotage of water wells. Power outages persisted throughout the year; only 13 of 27 power plants were functioning. As late as mid-December 2020, three months after ports were reopened, the government was still urging consumers to stop queueing at gasoline stations.

The collapse of oil revenues strained the ability of the monetary and fiscal authorities to defend the country’s currency peg, and on December 16 for the first time in five years, the board of directors of the Central Bank of Libya, agreed to devalue the currency from LYD 1.00 = SDR 0.5175 to LYD 1.00 = SDR 0.156 effective January 3, 2021, with the equivalent rate to the U.S. dollar at LYD 4.48 = US$1.00 using the current US$1.44 = SDR 1.00 rate. The new rate aims to apply to all governmental, commercial, and personal foreign exchange transactions, and largely remove the growing wedge between black market and official rates, also rendering the foreign exchange transactions surcharge unnecessary.

The economic contraction in 2020 exacerbated the effects of the long-running conflict on social conditions and poverty outcomes in the country. Since the beginning of the conflict, more than half of the health facilities in Libya were either destroyed or were forced to close as a result of shortages of medicine and supplies as well as a lack of health personnel. Similarly, about 6 percent of schools were closed and many more were diverted for use as emergency shelters for displaced families. In 2020, these trends deepened the socio-economic strife faced by Libyans. The number of people with humanitarian needs—food, health services, and protection—rose in 2020 over 2019. The number of food insecure people doubled from 2019 to 2020 to reach 699,000 people (nine percent of the population), with significant increases recorded among both displaced and non-displaced Libyans, according to the U.N. Office for the Coordination of Humanitarian Affairs (OCHA).

All of these challenges were compounded by the outbreak of COVID-19 and the measures taken to contain the disease including workplace shutdowns, school closures, and restraints on mobility. The effects were worse among displaced persons, immigrants, and refugees.

A recent array of negotiations and agreements foresees a way forward after a decade of military conflict and political strife. Following the ceasefire agreement between the GNA and the LNA, the U.N. Support Mission in Libya confirmed in midNovember that the GNA and the LNA had agreed to hold parliamentary and presidential elections in December 2021. The breakthrough was achieved through the Libyan Political Dialogue Forum, a meeting of 75 Libyan delegates held in Tunisia, with a threemember Presidency Council headed by Mohamed al-Mnefi and a Prime Minister, Abdelhamid Dabeiba, tasked with forming a Government of National Unity, that will in turn prepare Libya for general elections.

In addition to these developments, several economic agreements have also come into fruition. The National Oil Corporation and the western and eastern forces of the Petroleum Facilities Guard agreed in November 2020 to unify the latter’s operations to protect the oil industry’s assets across the country. Budget unification talks between the GNA and the Interim Government (IG) began in mid-January.

There is reason for cautious optimism for recovery and healing, but downside risks abound.
The ceasefire agreement of October 2020 stipulated that all military units and armed groups withdraw from the front lines, with foreign fighters and mercenaries transferred to Tripoli and Benghazi before leaving Libya by January 23, 2021. However, the underlying political and economic division of the country has complex roots and competing international influences can make a difference in outcomes. With major uncertainties associated with these dynamics, projecting future economic trends is a daunting task. However, if the current rapprochement remains on track, a significant economic recovery from the 2020 slump is within reach in 2021. In light of major maintenance problems that will limit oil production, a 1.1 million barrel per day (MBD) production is possible. As a result, GDP growth is forecast at 67 percent in 2021 in real terms. Higher international oil prices—the Bank forecasts crude oil prices to rise to US$44 per barrel in 2021 from US$41 per barrel in 2020—will help support overall rebound in oil output, leading to stronger government consumption and investment, and in turn supporting a recovery in private consumption.
The agenda for social policy, institutional reform, and public action is full and needs urgent attention. In addition to the conflict-driven challenges and neglect, Libyans are also increasingly affected by the COVID-19 pandemic. With relaxation of containment measures, the spread of the virus has accelerated. As of end-January 2021, there were 118,632 confirmed cases and 1,877 reported deaths due to COVID-19. This problem is probably under-monitored and compounded by an incapacitated health sector.

More than one in three health facilities in Benghazi and one in six in Tripoli were damaged or destroyed, and nearly 20 percent were closed. Surviving health centers face critical gaps in medicines and supplies, as well as a loss of health workers, many of whom were from overseas and have fled amid the violence.

In the overall ranking of the Global Health Security Index, Libya ranks 168 out of 195 countries. With these challenges, the rollout of vaccines for the virus will likely be slow by regional standards, with delays related to territorial insecurity, lack of cold storage facilities, and strained public finances.