LIBYA WORLD BANK

The United Nations (UN) is seeking to bring the House of Representative

and General National Congress together at the negotiating table to reach a
deal to end the conflict that erupted following last summers legislative
elections. The UN is urging the two sides to reach an agreement on a
coalition government whose highest priority would be restoring services
and the confidence of citizens in the Libyan State, as well as combatting
terrorism which has increasingly become a threat to the political transition
process and the security and stability of the country and the region.
In this context of political instability, the process of drafting a new
constitution has been significantly delayed. In addition, there has been no
progress in formulating a strategy to stimulate the non-oil economy and
put in place the building blocks for sustainable, diversified, private sectorled economic growth.
Severe disruptions to the oil sector have driven the economy into
recession since mid-2013. A series of strikes and security breaches at oil
sites have significantly disrupted activity in the hydrocarbon sector.
Production dropped to an average of 0.5 million bpd in 2014 (down from 1
million bpd in 2013 and a potential 1.6 million bpd). As for the non-oil
economy, potential for growth and development has been crushed by the
armed conflict as well as lack of policy actions and reforms. As a result,
real GDP is estimated to have contracted by 24 percent in 2014, following
a 13.6 percent drop recorded in 2013. The economic recession over two
consecutive years cut nominal GDP by half (US$ 82 billion in 2012 and US$
US$ 41.2 billion in 2014) as did income per capita (from US$ 12,800 in
2012 to US$ 6,600 in 2014).
Renewed internal strife has put enormous strain on the budget and the
external stance. Reflecting mostly the collapse in oil export revenues, total
revenues dropped by 61 percent in 2014 (from LYD 54.8 billion in 2013 to
less than LYD 21.4 billion in 2014). Moreover, domestic uncertainty
prompted by the ongoing conflict has more than halved revenues from the
non-oil sector. On the expenditure side, the high wage bill and significant
subsidies represented 69 percent of GDP (LYD 36 billion out of LYD 44
billion total expenditures). Domestic subsidies continue to drain public
finances. At the same time, capital spending has fallen to a fifth of its prerevolution level. Reflecting these developments, the government ran a
significant budget deficit estimated at 43.5 percent of GDP in 2014 (LYD
22.8 billion), the highest ever recorded. The political crisis also took a toll
on exports, while consumption driven imports remained high. The large
current account surplus recorded in 2012 (29 percent of GDP) was more
than halved in 2013, before turning into a large deficit of 32.8 percent of
GDP in 2014.
Economic prospects in 2015 depend on the pace of the resolution of the
political and security situation. Even if the on-going national dialogue
reaches an agreement for a national unity government by the second half
of the year, it is expected that production of oil will remain at last years
level of 0.5 million bpd given the time needed to rebuild the damages

incurred by oil infrastructures and terminals. On this basis, GDP is forecast

to grow by 2 percent only this year, driven by the non-hydrocarbon
activity. Both public finances and the balance of payments are projected to
continue running high deficits due to low global oil prices and below
potential oil production and exports.
Over the medium term, a fast pace of stabilization and reform would
release substantial growth potential. In the event of a conflict resolution in
the second half of 2015, and a rapid resumption of oil production,
economic growth could conceivably reach high double digit rates in 2016
and between 5.5 and 6 percent thereafter. Both the budget and current
account balances will significantly improve, eventually turning into
surpluses, allowing foreign reserves to stabilize.
Immediate challenges are to manage fiscal spending pressures without
compromising the need for rapid restoration and improvements in basic
services and infrastructure. Current expenditures need to be brought
under control, inter alia through reforming the subsidy system and
downsizing the public sector. The tax system also needs an overhaul to
extend the tax base of the non-hydrocarbon sector and improve tax
collection. Over the medium term, priorities are to promote private sector
development, job creation and inclusive growth, including reorienting the
economy away from hydrocarbon dependence, reforming the financial
sector, and setting up a governance framework for better efficiency in the
management of public finance and human resources.