Rhiannon Smith
Systemic corruption and overspending
Libya’s wealth is also being squandered at the level of the two formal governing authorities – the GNU in Tripoli and the Government of National Stability (GNS), the political arm of the LNA, in Benghazi – as well as at the level of Libya’s key institutions which theoretically provide Libyans with the public goods and services they need.
The political division within Libya means that there has been no agreed budget between the East and West in several years, and few limits on the increasing amount of money being spent by both governing authorities each year.
In 2025, according to the CBL, over half of Tripoli’s expenditure went on Libya’s public sector salaries (including salaries in the East) – in Libya, public salaries have historically functioned as a type of state benefit, distributing oil wealth to citizens through public sector employment. This has resulted in a bloated and inefficient sector rife with corruption.
Around a quarter of spending also went on subsidies, another way in which the Libyan state has typically sought to keep the population satisfied. These figures don’t include eastern spending. Rampant corruption within Libya’s Letters of Credit system, the main way that Libyan actors secure access to foreign currency for imports, is also driving the growing USD deficit.
Efforts by the CBL to rein in public sector spending have largely been unsuccessful and although the new CBL Governor Naji Essa has introduced a raft of monetary measures to try to stabilise the Libyan economy, they are akin to fixing minor leaks on a sinking ship – without major reforms to public sector spending on salaries and subsidies, as well as moves to tackle institutionalised corruption, there seems little chance of the ship staying afloat.
As it stands, Libya’s oil sector is still generating wealth, but that wealth is being pumped into an economic system which is full of leaks. Some are a product of years of political, institutional and fiscal failings which require major reforms to correct, others are deliberate schemes (often taking advantage of structural flaws) designed to channel Libya’s wealth away from the state coffers and into individual pockets.
Beneath the shiny new buildings, the lucrative development contracts and the exported barrels of crude lies a crumbling institutional landscape which is finding it harder and harder to hold up the country’s economy as state spending balloons, inflation accelerates, and corruption expands, pushing Libya deeper into a financial hole.
Libya as a geopolitical concern
The UN and many key foreign stakeholders are actively engaged on the Libya file, though there is little unity these days, with individual governments primarily pursuing and protecting their own interests and often pulling in different directions as a result.
Finding ways to address the economic crisis is a key focus, though in many cases this is framed through the commercially driven lens of the investment opportunities that a functioning Libyan economy could offer to well-placed companies. Libya’s energy sector is at the top of the list of interests in both commercial and strategic terms.
Libya’s proximity to Europe and its gas reserves means it is an attractive prospect for Europeans seeking to reduce reliance on Russian oil and gas, while Libya’s proven reserves and sweetness of its crude mean there are serious profits that could be made for companies willing to stomach the risk.
There are efforts underway to mediate some sort of unified budget agreement or spending framework to rein in expenditure. However, there is a real danger that striking deals involving the current elite – the main architects of the accelerated corruption and state spending – without stringent conditions linked to progress on the political front could result in the further entrenchment of these corrupt and inefficient systems and practices.
For many countries, especially those in the North Africa and Mediterranean region, Libya is increasingly seen through a security lens, especially as it is a main hub of illegal migration to Europe, with thousands of people attempting to cross the Mediterranean from Libya each a year.
Despite platitudes around improving human rights conditions, European nations continue to provide support to Libyan coast guard units whose role in the horrific abuse of migrants is well documented, as well as facilitating the return of migrant boats intercepted in the Mediterranean to Libya despite it not being a ‘safe port.’
At a geopolitical level, Libya is at the intersection of several live international issues. Russia has a strong presence in eastern Libya and close ties to Khalifa Haftar, supplying him with vital military equipment and support.
Moscow’s paramilitary Africa Corps forces (the rebranded and restructured Wagner Group) are positioned at Libyan bases and have frequently used Libya as a forward base for operations further south in the Sahel region and in other parts of Africa. Western nations are keen to see Khalifa Haftar and his sons distance themselves from Moscow, though there are few signs of this to date.
Libya’s position in the eastern Mediterranean means it has a stake in the often-contentious maritime borders in that region. Indeed, a 2019 maritime Memorandum of Understanding between Libya and Turkey created a direct maritime border between eastern Libya and Turkey – in contravention of existing Greek, Cypriot and Egyptian maritime zones – and a subsequent agreement granted Turkey exploration rights in this zone.
Although the MoU has not been ratified by Libya’s parliament, there has recently been a détente between Turkey and Benghazi resulting in heightened concerns that ratification is possible. Turkey also maintains a major military footprint in western Libya, with troops on the ground and use of airbases.
Meanwhile, Libya’s border with Sudan and the role of LNA-aligned forces in transporting UAE-supplied military supplies from the UAE to the rebel Rapid Support Forces (RSF) are of particular concern to Egypt and others who support the Sudanese Armed Forces.
In general, foreign actors are engaging in direct negotiations and deal-making with the Libyan actors concerned. This in turn gives the Libyan actors significant leverage over international actors, reducing the likelihood of any unified, concerted international effort to pressure the Libyan elite into moving ahead with a political process which would result in national elections.
Reasons to be hopeful
Despite the litany of challenges facing Libya, there are reasons to be hopeful. Municipal council elections have taken place successfully across Libya in the last few months with high turnout rates. Libyans desperately want to be able to choose their political leaders, or at a minimum be able to hold them to account – they will not give up easily on their democratic dreams. Although major political protests are not common in Libya, Libya’s elite cannot afford to ignore widespread anger against them.
Although the security environment is fragile and the lack of rule of law creates fear and uncertainty for many people, Libyans have been able to avoid large-scale conflict and war for the past six years and informal mediation channels are fairly effective. In addition, although the country is divided between East and West in governance terms, Libyans can travel between the different areas and overt hostility between communities is fairly limited.
At a more formal level, efforts to unify the two military structures are making some progress, with both sides showing a willingness to at least engage in the unification process. As for the economy, there are positive developments in the oil sector with a wave of new investment being secured, while international efforts to stem the decline of the Libyan economy may yet have an impact, if the right levers are pulled.
Although the Libya of today is not yet the peaceful and prosperous democracy envisioned by many Libyans after Qadhafi was overthrown in 2011, it remains a country which has a huge amount of potential vested in its people, its land and its institutions. The flame of the 17 February revolution has not yet gone out, but without concerted action to get Libya back on the path to political unity, economic stability and accountability, Libya’s hopes of a better future could be reduced to ashes.
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Rhiannon Smith – Libya-Analysis’s Managing Director.
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