A new report from the World Bank says the Libyan economy is near collapse as political stalemate and civil conflict prevent it from fully exploiting its sole natural resource: oil.
With oil production just a fifth of potential, revenues have plummeted, pushing fiscal and current account deficits to record highs.
With the dinar rapidly losing value, inflation has accelerated, further eroding real incomes. In addition to near-term challenges of macroeconomic and social/political stability, medium-term challenges include rebuilding infrastructure and economic diversification for job creation and inclusive growth.
The outlook hinges on the assumption that the Libya’s House of Representatives will endorse a new government of national accord by the end of 2016, which will be able to start restoring security and launching programs to rebuild the economic and social infrastructures, especially oil facilities and terminals.
In the baseline scenario, production of oil is projected to progressively improve to around 0.6 million bpd by end-2017. On this basis, GDP is projected to increase 28%. However, the twin deficits will remain as revenues from oil and will not be sufficient to cover budget expenditures and consumption-driven imports.
This should keep the budget deficit at about 35% of GDP and the current account deficit at 28% of GDP in 2017. However, downside risks to this scenario remain high as the political uncertainties may prevail.
Over the medium term, it is expected that oil production will progressively increase without reaching full capacity before 2020 due to the time necessary to restore the heavily damaged oil infrastructure.
In this context, growth is projected to rebound at around 23% in 2018. Both the fiscal and current account balances will significantly improve, with the budget and the balance of payments running surpluses expected from 2020 onwards. Foreign reserves will average around US$26 billion during 2017-2019, representing the equivalent of 13 months of imports.
Unless immediate and target action is taken to address the humanitarian crisis, the situation is unlikely to improve. The situation in Libya is such that simply relying on a slightly improved macro outlook is unlikely to bring about significant change.
The country needs humanitarian aid and specific programs to address the destruction and lack of basic services that a large part of the population faces.
(Source: World Bank)