As a political solution to Libya’s civil war remains elusive, with rival governments operating in Tripoli in the west and Tobruk in the east, running a fully functioning economy has been all but impossible.
Once a major oil exporter, the war-torn country has had to make do with less production and, given the collapse in global prices, less revenue.
In an email interview, Mohamed Eljarh, a nonresident fellow at the Atlantic Council’s Rafik Hariri Center for the Middle East, discusses what remains of Libya’s non-hydrocarbon economy and the toll that the deteriorating economic situation is taking on the country’s people and businesses.
WPR: Outside of the oil sector, where is most of the economic activity in Libya coming from, and how integrated is the economy across the country?
Mohamed Eljarh: Outside of the oil sector, telecommunications, which is controlled by government-owned companies, is considered the largest economic sector in the country. The three main mobile phone operators—Libyana, al-Madar and Libya Phone—have no competition from private mobile phone operators. Yet the sector suffers from significant disruptions as a result of the damage to infrastructure from the 2011 revolution and ensuing civil war, with some estimates suggesting that a quarter of the country’s mobile tower sites have been damaged or stolen.
Libya’s private sector, in the form of small-scale production and import and export activity, continues to function despite the political turmoil. However, it has been hit hard by the lack of security, political and institutional divisions, and the deteriorating financial and economic situation.
The decrease in the number of credit letters issued by the Central Bank in Tripoli for businesses that depend on imports from abroad has hit the commercial sector hard, resulting in importers having to get their foreign currency from the black market and pay a huge premium on the official exchange rate.
There are also reports of widespread corruption in the central banking system, from which the letters of credit are issued. There is an obvious lack of oversight, monitoring and evaluation of businesses that are granted letters of credit.
WPR: In the absence of a fully functioning central government, what type of oversight and regulation of the economy is there? Who adjudicates disputes, and what role do key state institutions play?
Eljarh: With the ongoing political and institutional divide in Libya, there is no real oversight or regulatory framework for the economy, and the shadow economy is flourishing. The Central Bank, which gets its money from oil and gas revenues and by tapping Libya’s foreign currency reserves, has turned primarily into a national payment system dispensing salaries to the 1.2 million public sector employees, as well paying for subsidies and different ministries and departments.
After the rupture in the unity government in 2014, Libya has been politically divided between two capitals in Tripoli and Tobruk, with each struggling for control of resources and key state institutions. National debt has been rising, with deficit levels reaching 75 percent in 2015 and falling back to 60 percent in 2016. Libya is burning through its currency reserves, with estimates indicating reserves dropped from $113 billion in 2013 to $58 billion in 2016.
Libya’s Audit Bureau, which is the state institution in charge of exercising effective control over public resources, continues to issue its reports about the financial and economic situation in the country and the level of corruption within state institutions. However, despite the various reports of irregularities, corruption and mismanagement of public funds, little is being done to address these violations.
Over the last couple of years, the Audit Bureau and the Central Bank have been engaged in a public war of accusations with each other. The Audit Bureau asserts that the Central Bank should do more to fulfill its monitoring and evaluation roles and reverse, or at least slow, the downward spiral of the economy and the erosion of Libya’s finances. The Central Bank’s reply is that it cannot execute its role properly under the current political circumstances.
On various occasions, the governor of the Central Bank, Sadiq al-Kabir, has stressed that it is doing its best to preserve the country’s finances under very difficult circumstances.
According to Kabir, the Central Bank has filed various lawsuits in cases of money laundering, corruption and embezzlement of public funds that together total more than 5 billion Libyan dinars—about $3.6 billion. However, the general prosecutor in Tripoli and the judiciary are very far from being able to handle such cases in the current environment, with threats of retribution and attacks against individuals or institutions that dare to take action to address these crimes.
WPR: How much has the economic situation imperiled everyday life for Libyans, including established businesses, and what are the prospects for the economy in the years ahead?
Eljarh: The deteriorating economy is having a detrimental impact on ordinary Libyans, as an increasing number of citizens struggle to make ends meet. In 2016, the United Nations estimated that 1.2 million Libyans were in need of humanitarian assistance.
On top of the political and institutional struggle in Libya, the decrease in oil production coupled with the lower price of oil globally have resulted in a significant drop in the value of the Libyan dinar against foreign currencies on the black market.
Increasingly the only place that citizens and businesses can get foreign currency to carry out personal or business transactions is the black market. Given that Libya imports most of its needed goods and products from abroad, the drop in the value of the dinar means significant inflation, with an increasing number of families unable to afford what was affordable to them two or three years ago.
Importing is mainly done by privately registered companies and businesses. Ordinary citizens get their goods either from privately owned supermarkets and shops or in some cases from the consumer associations that sell limited types of subsidized staples such as flour, oil, rice and sugar.
The parallel or unregulated private sector has a direct impact on people’s lives, since actors in this sector control the prices, the type and quality of goods imported. All this is happening because the relevant authorities are completely out of the picture, given the political and security situation in the country.
The economic outlook for Libya is bleak, and the country will require significant structural reforms in its economic and financial sectors. Such reforms will be impossible under the current circumstances. And even when the situation improves, Libya will require assistance from international organizations such as the World Bank and the International Monetary Fund to carry out reforms and fund key development and infrastructure projects in the future.
Mohamed Eljarh – Nonresident Fellow, Rafik Hariri Center for the Middle East.