Can the Libyan economy function without a political solution?

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While a political solution to the civil war in Libya remains elusive, with rival governments operating in Tripoli to the west and Tobruk to the east, managing a fully functioning economy has been virtually impossible. Once a major oil exporter, the war-torn country has had to settle for less production and, with collapsing world prices, less income. In an email interview, Mohamed Eljarh, a non-resident member of the Rafik Hariri Center for the Middle East of the Atlantic Council, discusses what remains of the Libyan non-oil economy and the consequences of the deterioration of the economy. economic situation on the population and businesses of the country.

WPR: Apart from the oil sector, where does most of the economic activity in Libya come from and how integrated is the country’s economy?

Mohamed eljarh: Apart from the petroleum sector, telecommunications, which are controlled by state-owned companies, are considered to be the country’s largest economic sector. The three major mobile phone operators — Libyana, al-Madar and Libya Phone — have no competition with private mobile operators. Yet the sector suffers from significant disruption due to infrastructure damage from the 2011 revolution and the civil war that followed, with some estimates suggesting that a quarter of the country’s mobile tower sites have been damaged or stolen.

The Libyan private sector, in the form of small-scale production and import and export activities, continues to function despite political turmoil. However, it has been hit hard by the lack of security, political and institutional divisions and the deteriorating financial and economic situation. The decrease in the number of letters of credit issued by the Central Bank of Tripoli for businesses that depend on imports from abroad has hit the trading sector hard, forcing importers to source their foreign currency on the black market and pay a huge premium on the official exchange rate. There are also reports of widespread corruption within the central banking system, from which letters of credit are issued. There is a clear lack of monitoring, tracking and evaluation of businesses that receive letters of credit.

WPR: In the absence of a fully functioning central government, what kind of control and regulation of the economy is there? Who settles disputes and what role do the main state institutions play?

Eljarh: With the current political and institutional divide in Libya, there is no real control or regulatory framework for the economy, and the underground economy is thriving. The Central Bank, which derives its money from oil and gas revenues and from Libya’s foreign exchange reserves, has mainly transformed into a national payment system distributing salaries to 1.2 million employees. the public sector, as well as to pay subsidies and various ministries and departments. .

After the national unity government broke down in 2014, Libya was politically divided between two capitals, Tripoli and Tobruk, each struggling for control of resources and major state institutions. National debt has increased, with deficit levels reaching 75% in 2015 and falling to 60% in 2016. Libya is depleting its foreign exchange reserves, with estimates indicating that reserves have fallen from $ 113 billion in 2013 to $ 58 billion. dollars in 2016.

The Libyan Audit Office, which is the state institution responsible for exercising effective control over public resources, continues to publish its reports on the country’s financial and economic situation and the level of corruption within state institutions. However, despite various reports of irregularities, corruption and mismanagement of public funds, little is being done to address these violations.

Over the past two years, the Audit Office and the Central Bank have embarked on a public war of accusations. The Audit Office says the Central Bank should do more to fulfill its monitoring and evaluation roles and reverse, or at least slow down, the downward spiral of the economy and erosion of Libyan finances. The response of the Central Bank is that it cannot properly fulfill its role under the current political circumstances.

On several occasions, the governor of the Central Bank, Sadiq al-Kabir, has stressed that she is doing her best to preserve the country’s finances under very difficult circumstances. According to Kabir, the Central Bank has filed various lawsuits in cases of money laundering, corruption and embezzlement of public funds totaling more than 5 billion Libyan dinars, or about 3.6 billion dollars. However, the Attorney General of Tripoli and the judiciary are very far from being able to deal with such cases in the current context, with threats of reprisals and attacks against individuals or institutions that dare to take measures to fight against these crimes.

WPR: To what extent has the economic situation threatened the daily lives of Libyans, including established businesses, and what are the prospects for the economy in the years to come?

Eljarh: The deteriorating economy is negatively impacting ordinary Libyans as more and more citizens struggle to make ends meet. In 2016, the United Nations estimated that 1.2 million Libyans were in need of humanitarian assistance.

In addition to the political and institutional struggle in Libya, declining oil production coupled with falling oil prices around the world have resulted in a significant drop in the value of the Libyan dinar against foreign currencies on the black market. Increasingly, the only place where citizens and businesses can obtain foreign currency for personal or business transactions is the black market. As Libya imports most of its necessary goods and products from abroad, the decline in the value of the dinar means significant inflation, with a growing number of families unable to afford what was affordable to them two years ago. or three years.

Importation is mainly carried out by companies and private enterprises. Ordinary citizens get their goods either from supermarkets and private shops, or in some cases from consumer associations that sell limited types of subsidized staples such as flour, oil, rice and sugar. The informal or unregulated private sector has a direct impact on people’s lives, as the actors in this sector control the prices, type and quality of imported goods. All of this is happening because the relevant authorities are completely out of sight, given the political and security situation in the country.

Libya’s economic outlook is bleak and the country will need significant structural reforms in its economic and financial sectors. Such reforms will be impossible under the current circumstances. And even when the situation improves, Libya will need the help of international organizations such as the World Bank and the International Monetary Fund to carry out reforms and finance key development and infrastructure projects in the country. ‘to come up.


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