You may also like
Six years of political turmoil in Libya have taken their toll on the oil-rich North African nation’s economy. The petroleum production and exports the country relies on have plummeted since the uprising that overthrew Muammar Qaddafi in 2011, then metastasized into fighting between rival factions. The country now has three governments competing for power: the Presidential Council of the United Nations-backed Government of National Accord in the capital Tripoli and two rival parliaments, one in Tripoli and one in the eastern city of Tobruk.
The Central Bank also has rival branches in Tripoli and one in the east. In practice, the Tripoli branch manages most of the bank’s operations, but that has not prevented the eastern branch from launching its own initiatives, including printing its own money in May 2016 after complaining of insufficient cash deliveries from the western branch. The Tripoli-based branch has also been at odds with the Presidential Council over some key policy issues, including whether to devalue the dinar as well as over the bank’s refusal to release funds to the government.
Meanwhile, inflation has increased rapidly and banks have a dire shortage of currency because, concerned about the rampant crime and insecurity, many Libyans have moved their money elsewhere.
According to the Tripoli-based Central Bank, crude oil accounts for 96 per cent of the country’s total exports, making the economy ‘susceptible to shocks in the international crude oil markets’. As well as interruptions to production due to security issues, the oil sector has been hit by a global decline in crude oil prices.
Before 2011, the country was producing 1.6 million barrels of oil a day and exporting it to China, Italy, Germany, Spain, Turkey and others. By contrast, in 2016, it was pumping out only 400,000 barrels per day, according to the Central Bank. The country’s crude oil revenues fell from $53.3 billion in 2012 to $4.8 billion in 2016.
Brookings Institution fellow Federica Saini Fasanotti noted, “The dramatic fall was due to intense fighting during and after the revolution, when rival factions and militias caused considerable damage to oil infrastructure [and] all but blocked oil production and export. Libyan natural gas facilities suffered the same fate.”
Largely as a result of the falling oil production, between 2012 and 2016 Libya’s gross domestic product (GDP) declined from $84.7 billion in 2012 to $16 billion in 2016, whereas inflation rates increased from 15.9 per cent to 25.9 per cent. The rising inflation means that cash-strapped Libyans must pay more for good and services.
The country’s economy shrunk by 2.5 per cent in 2016, according to the World Bank, and its estimated real GDP had fallen to less than half of its pre-revolution level. The official exchange rate is 1.4 Libyan dinars to a dollar, but in reality, this is more than 8 dinars to a dollar on the black market.
The discrepancy leaves room for exploitation. For instance, some profiteers withdraw dollars overseas at the official rate and then sell them on the black market at the inflated rate. Others run fraud schemes by obtaining letters of credit to import goods into Libya, then procure fewer goods than agreed upon – or in some cases none – and launder the money overseas or sell it on the black market for a profit.
Jason Pack, executive director of the US-Libya Business Association, wrote recently, “If Libyans were at first shocked when the dinar plunged to 2 per dollar, at this point they are numb.” Because of the Libyans’ lack of confidence in their local currency, he continued, “If left untreated, Libya could become like various Latin American economies where housing and car prices are quoted and paid for only in dollars and significant inefficiencies are introduced into the whole economy by the eclipse of the national currency as the primary vehicle of commerce.”
Officials at the Central Bank in Tripoli and the Government of National Accord’s Presidential Council have been debating whether to devalue the dinar to close the discrepancy between the official and black-market rate, reduce the deficit and bring more funds into the banks.
The Presidential Council supports devaluation, but the Central Bank has so far refused. Devaluation would likely be unpopular because it would raise the cost of imports and would devalue the funds Libyans have now.
Meanwhile, banks have been beset by a liquidity crisis that means many Libyan citizens are unable to withdraw their funds and employers are often unable to pay their workers’ salaries.
The Central Bank said the crisis was the result of ‘political division and the deterioration of the security situation by the end of 2014 and the inability of the state security institutions to impose their control on the security situation’. Due to the prevalence of bank robberies, hijackings and other crime, people are afraid to put their money in the banks.
The Central Bank has taken steps to enhance the use of electronic payment methods to encourage people not to take their money out in cash, but has noted that ‘the main solution to this problem lies in political stability and financial discipline and the unification of sovereign institutions and stability of the security situation in the country’.
The Washington Post spoke to one man who had been queuing at the bank for 32 days in an attempt to take out $60. “Every day, our future is getting darker and darker,” airline employee Abdul bin Naji told the newspaper.
At least one Libyan has launched a business based on the never-ending lines outside of banks. Ahmed al-Bey offers to stand in line for customers at a cost of 50 dinars. When he nears the front of the queue, he rings the customer, who then comes and takes his spot.
Meanwhile, the Post reported, some Libyans with the means to do so are buying products like luxury cars and then sending them out of the country as a way of safeguarding their money, rather than keep it in the banks.
The oil sector had seen some hopeful news in 2017, with production beginning to rise again, as a result of a period of relative calm that allowed for the rebuilding of some infrastructure. Libya was also exempted from an agreement by the Organization of the Petroleum Exporting Countries (OPEC) to cut oil production during the first six months of 2017, as part of a deal with Russia and other non-member states to stabilize prices. By July 2017, Libya was pumping up to about 1 million barrels a day, more than double the production during most of the previous year.
Yet the increased production was followed by more disruptions. The country’s largest oilfield, Sharara, was closed in August 2017 due to a pipeline blockade by an armed group. The group claimed to be part of the Petroleum Facilities Guard, set up to protect oilfields, and said they were demanding more resources for their home region of Zintan in western Libya. However, Libya’s National Oil Corporation said in a statement that the head of the Petroleum Facilities Guard denied any connection with the group and called it a “rogue militia”.
The blockade was the latest in a series of shutdowns by armed groups and protesting oil workers since the facility reopened in December 2016 after a two-year closure. The closure was followed by the shutdown of two other fields, al-Feel and Hamada, also due to blockades by the same group. The National Oil Corporation said the shutdowns caused the loss of 360,000 barrels a day and about $160 million in lost production.