Armed conflict, coronavirus and falling oil prices ensure economic disaster in Libya

Economic hardship is something Libyans have been living with since the fall of dictator Muammar Qadhafi in 2011 and the outbreak of civil war over the power vacuum that occurred in the country. To all the difficulties posed by the armed conflict and fragmentation of power, with Fayez Sarraj's National Accord Government and the Libyan National Army commanded by Khalifa Haftar fighting for months for Tripoli, we must now add the sharp fall in oil prices, the raw material that has kept the nation afloat in recent years, and the uncontrolled spread of the coronavirus. The closure of some oil ports this year, although they have all been reopened, and the long battle that has taken place in Tripoli throughout this year will also hamper the growth of the Libyan economy. 

Libya had already suffered a contraction of 2.5% of GDP in 209, following the recovery that the country had experienced in the period 2017-2018. Despite this, last year prices began to fall and inflation was brought down thanks to the reduction in exchange rates promoted by the Central Bank of Libya. Thanks to oil revenues, the debt fell slightly, though it was 144 percent of GDP, and there was a 1.7 percent surplus in the public accounts for the first time in six years. Despite these modest achievements in 2019, everything has gone wrong in 2020. 

In the first two quarters of 2020 the Libyan dinar lost 54 percent of its value on the parallel market as a result of the exchange restrictions applied by the Central Bank of Libya and the great macroeconomic uncertainty the country is experiencing. The budget drawn up this year reflects this situation, as it forecasts a large deficit. The World Bank indicates in its report that the fall in GDP in 2020 may be as much as 40 per cent of GDP, but the document was drawn up in July, when the oil ports were still closed and imports of this raw material had collapsed. All these factors are leading the country into the worst political, economic and humanitarian crisis since 2011, according to the World Bank. 

In its report the organisation recognises that the only scenario with which the current disaster could be overcome would be that of the reunification of the country and its institutions, the implementation of political and economic reforms of a structural nature and the diversification of the economy. The World Bank warns in the document that the conflict prevents it from having reliable information on exactly what is happening to the Libyan economy. 

The country currently has two budgets as a result of the existence of two governments that claim to be the legitimate one. The National Accord Government, recognised by the international community and based in Tripoli, and the Provisional Government based in Benghazi and backed by the House of Representatives and supported by the Libyan National Army forces commanded by Marshal Khalifa Haftar, which manages a budget that only covers its own extra expenses

Executive pay has continued to rise despite the fall in income. Public sector wage payments account for 42% of GDP, some LHD 30.5 billion. Two million people work in the public sector in a population of 6.6 million. Subsidies for supplies and oil have also remained high and account for 10.8% of GDP.