Why an enhanced ‘economic track’ must be integrated into political negotiations
Policies to address Libya’s interminable political and security crises have too often relied on a flawed system of elite bargains in which power- and wealth-sharing are used to keep the peace among rival factions.
The irony is that such policies often aggravate some of the very conflict dynamics they are intended to remedy, for example incentivizing economic predation and rent-seeking via control of state institutions.
This paper makes the case for an alternative approach. Efforts to tackle the economic causes of conflict in Libya must be systemically integrated into political negotiations, given equal status to the political ‘track’, and reinforced by active mediation.
The paper argues that an enhanced economic track of this nature should focus on five areas:
(1) immediate stabilization of the economy, with the UN and other international partners spearheading the development of technical governance;
(2) structural economic and political reform, pursued through a consultative process, so that more equitable and stable economic models are developed and entrenched;
(3) capacity-building to equip Libyan officials and institutions with the skills and resources to implement reform programming;
(4) anti-corruption enforcement; and
(5) public diplomacy, so that ordinary people and civil society have a stronger say in Libya’s political and economic future.
Summary
- With the political situation in Libya remaining precarious, there is a critical need to make economic reform an integral part of any national settlement. Yet despite broad acceptance among analysts that economic drivers of conflict play a significant role in Libya’s state dysfunction, international policy interventions have insufficiently addressed this dimension of the country’s problems. This paper makes the case for a change in approach.
- At the heart of the challenge is the fact that political contestation – including between parallel governments operating in the west and east of the country respectively – is all but indivisible from competition for control of economic resources and rents. Policymakers have at times reached ad hoc agreements on discrete aspects of economic governance, but these have never been integrated into an organized, internationally mediated ‘economic track’ within broader peace negotiations.
- Political mediation to date has been tacitly predicated on dividing resources among rival domestic parties to avoid outbreaks of violent conflict. But this merely entrenches clientelism, further undermining economic governance. Compounding domestic drivers of instability, international engagement with Libya’s state has degenerated in recent years into a competition between foreign patrons and other external actors over spheres of influence and access to territory and resources. As a result, any previous multilateral consensus on the need to secure unified and stable governance has been lost.
- State capture by elite networks has fuelled corruption and caused public spending to soar. (If expenditures unrecorded in official data are accounted for, the author estimates that Libya’s true fiscal deficit in 2024 may have exceeded US$10.4 billion – which would equate to more than 22 per cent of GDP.) This is manifestly unsustainable. With government revenues acutely vulnerable to fluctuations in oil and gas prices, any significant market shock could disastrously impact the state’s ability to pay public sector salaries, let alone fund economic development. Just as fiscal pressures are rising, moreover, the appetite of Libya’s elites to access more state funds is growing – a trend illustrated by the increasingly active role of private companies in previously state-dominated sectors such as oil.
- For Libyan citizens, the practical impact of such failings is that the state’s ability to deliver public goods is declining. With consumer prices rising, the country’s huge public sector workforce – historically dependent on government salaries – is struggling to survive financially. Subsidized medicines and other essentials are increasingly unavailable, while liquidity problems in the banking sector mean that some public servants have been unable to withdraw salaries from their bank accounts.
- Drawing upon lessons from Libya and comparable countries, this paper argues that breaking the country’s cycle of violence and instability requires political negotiations to formally integrate measures to address the economic drivers of conflict. An enhanced approach will need to focus on five areas:
- Immediate stabilization of economic governance via international mediation.
The UN, its international partners and international financial institutions must coordinate to identify technical solutions for improving economic governance. A focus must be on (a) bolstering transparency and accountability, particularly in relation to state expenditure, revenue collection and the financial declarations of state institutions; and (b) formulating a unified state budget.
- Structural economic governance reform pursued through a consultative process.
The new, formalized ‘economic track’ must be situated within the broader, internationally mediated political process. The focus of this track must be to reform Libya’s rentier system of government; this will mean finding alternatives to the use of power-sharing (and wealth-sharing) among competing factions and local elites. What is needed is a strategic, structured programme of reforms within a clear accountability structure.
- Capacity-building.
Libyan officials and institutions lack sufficient capacity to implement these ‘programmatic’ reforms. The provision of targeted institutional support by international financial institutions should be aligned with the delivery of governance reform.
- Anti-corruption enforcement.
International policymakers and donors should develop partnerships with Libyan anti-corruption agencies and related bodies. The aim of such partnerships should be not only to support better governance, but also to combat the growing transnational illicit financing mechanisms that are underwriting the activities of rival powerbrokers and undermining the foundations of the Libyan state.
- Public diplomacy.
The Libyan public must be meaningfully included in internationally led efforts to negotiate the formation of a unified national government. Existing conflict resolution has focused on achieving agreement among a familiar set of elites who are profiting extensively from the country’s instability (and who consequently have little interest in ceding power). The UN and its international partners can capitalize on previous efforts such as the socio-economic dialogue led by the UN Economic and Social Commission for Western Asia (ESCWA). Work could also build on the efforts of the Libyan Peace Makers group, a dialogue programme that brings together Libyans from across the country and with different perspectives to inform international mediation.
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Tim Eaton is a senior research fellow in the Middle East and North Africa Programme at Chatham House. His research focuses on the political economy of conflict in the Middle East and North Africa (MENA) region, and on the political economy of the Libyan conflict in particular.
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