Tim Eaton
VI – Policy proposals: How to make
reforms more coherent
An internationally mediated ‘economic track’, formally integrated into Libya’s peace negotiations, should focus on five areas: stabilization of governance, structural reform, capacity-building, anti-corruption enforcement and public diplomacy.
Given nearly a decade and a half of failed peacebuilding, Libyans can be forgiven for mistrusting the intentions of their own elites and foreign states alike. While this paper has focused on Libya’s systemic failings, the influence of foreign states has become increasingly malign in recent years.
Moreover, the foreign policy of the US, which until recently has led calls for political solutions and improved economic governance, has shifted to a more transactional approach. The status of the UN, and of multilateral institutions more widely, is in decline.
These shifts make developing an economic track of negotiations harder than ever. Yet the need has not diminished. As the violent reorganization of Tripoli’s security sector in May 2025 showed, the informal settlements that currently underpin the Libyan state’s governance are precarious.
The institutions critical to the state’s survival – such as the CBL and the NOC – are increasingly undermined and sidelined by vested interests.
Should these trends continue unabated, then the economy will become ever weaker and the opportunities for Libya and its foreign partners to benefit from soundly managed economic development will dwindle.
Private foreign investment in Libya will be a riskier proposition, while illicit financial flows and irregular migration will continue to thrive. It is therefore important to make the case that addressing economic drivers of conflict would provide the proverbial tide that lifts all boats for Libyans and their international partners.
The calculus of the UN and foreign states should rest on improving the well-being of the Libyan population, while drawing upon enlightened pragmatism in delivering settlements that have a realistic chance of working on the ground.
On the other hand, if external states adopt a narrower, more mercantilist approach – which is the apparent direction of travel – any investments by international companies are likely to be subject to instability and renegotiation as Libya’s economic landscape shifts and society suffers.
With this backdrop in mind, this paper’s assessment of the nature of Libya’s economic drivers of conflict, the paper’s appraisal of efforts to date to mitigate their effects, and its presentation of the lessons from other contexts reveal that negotiations on stabilizing Libya require an enhanced economic track.
While there is no substitute for a political track of negotiations to address political succession, or for a security track to agree arrangements in the security sector, the centrality of Libya’s economic challenges cannot be minimized. This problem set clearly illustrates the need for the economic track to be formally established as a forum for international mediation and negotiation – not simply dialogue – on par with its political counterpart.
A revamped economic track of this type should have five components.
The first should consist of engagement with current Libyan leaders on stabilizing economic governance in the short term.
The second element should be forward-looking, with a focus on planning for and initiating structural reforms to be undertaken under a future government.
The third should be continuing to develop the technical capacity of Libya’s public officials and their institutions.
The fourth should consist of enforcement measures against corruption and kleptocracy. Last but not least should be engagement of the general Libyan population through concerted public diplomacy. Only through such a combination of efforts can success be achieved.
Components of an enhanced
economic track
1. Stabilization of economic governance
In recent years, political incumbents and armed groups have significantly increased their control over state institutions, eroding the independence and operational integrity of these bodies. The aforementioned killing of Abdelghani al-Kikli in Tripoli in May 2025 came against a backdrop of his growing efforts to control the distribution of cash from the CBL and to dominate other key state institutions.
These behaviours were emblematic of a trend that has seen a rise in grand corruption and a deterioration in the availability and quality of public services such as education, healthcare and public security.
Unless such issues are addressed, the prospects for success in the wider political process are dim, and the recommendations of UNSMIL and its Advisory Committee are unlikely to succeed. Thus, economic stabilization must come before political transition in the sequencing of steps, rather than the other way around (as has often been the case to date).
Consequently, the UN (with its partners) should pursue measures that will stabilize economic governance as part of its ongoing political engagement in Libya. The aim should be to prepare the ground for a future political transition and to arrest worrying trends in economic governance.
Efforts should be limited, however, to ensuring adherence to existing laws and regulations, ensuring transparent financial reporting of laws and regulations, and agreeing a nationally unified budget. In this context, ‘unified’ means a budget that applies across the entire country, as opposed to the GNU releasing a budget in parallel to the GNS.
The NOC should be provided with a clearly delineated allocation from the budget to cover its running costs and investment needs, while the revenues it generates from oil and gas should all pass through the CBL; off-book spending and financing from eastern authorities for unvetted projects via the banking sector must cease, as must currency printing by eastern-based authorities.
The unified budget should be supported by provisions to ensure transparency and accountability, and should be designed in such a way as to prevent undue inflationary pressures.
The US is currently best placed to lead on this effort. Revamping its ‘economic dialogue’ as an economic mediation process would be the best means of doing this. Engagement by the US special adviser for Africa, Massad Boulos, has recently led to an agreement between western and eastern authorities on a budget for development.
If focused on institutionalizing arrangements – rather than representing insider deals with elites – these efforts could be stepped up and formalized, becoming complementary to wider UNSMIL efforts, which focus on medium- and longer-term economic reforms.
Creative means can also be sought to secure Libyan buy-in, such as leveraging of the partial unfreezing of the billions of dollars in Libyan assets held under sanctions regimes.
But the key is that any deals must bring with them transparency and accountability to reinstitute checks and balances in the governance of the state’s finances, thereby facilitating a shift towards strengthening of state institutions. Other countries or actors could also theoretically take on the role of the US in such a direct negotiation, but to date there have been no indications that any are willing to do so. The EWG has proven that it cannot fulfil this role.
While these goals may sound modest, they have eluded policymakers for a number of years. In particular, placing pressure on Libyan institutions to act within the law, and naming and shaming them where they do not, would be a significant step forward. Such efforts can build on the quiet work of the US to strengthen the CBL’s anti-money-laundering policies and to establish third-party monitoring of the CBL’s dollar transactions.
These efforts can build leverage on Libyan leaders given Libya’s reliance on access to US dollar markets. Improvements in this regard also open up means of pressuring Libya’s commercial partners to encourage better behaviour by Libyan officials and rival powerbrokers through commercial compliance regulations in Western markets.
Where opportunities exist to find technical fixes that would improve economic governance, these should be explored.
The World Bank, in particular, could provide useful insights, given its expertise in public finance management. Among other measures, external engagement with Libyan policymakers to assist in the transparent and accountable execution of spending under (development) of Libya’s budget framework could help to ensure that, even amid ongoing policy dysfunction, the state is investing in its own future.
Presently, planned expenditures on development are rarely executed in practice, as procedural problems resulting from the national governance split impede the legal disbursement of funds. One symptom of this split is the Haftar family’s apparent reliance on a dedicated Libyan Development and Reconstruction Fund for public works in eastern Libya; however, spending through this fund has little or no official oversight from the Libyan authorities, and the fund appears to be accountable (and in name only) to the House of Representatives.
Reorganizing funding mechanisms and channelling funds through the proper state entities must be a priority for both Libyan and international policymakers.
***
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.
________________
