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Chronicle of the Middle East and North Africa

Libya: Economic Crisis Worsens Despite Rise in Oil Prices

Libya: Economic Crisis
A picture shows Libya’s National Oil Corporation (NOC) headquarters in the capital Tripoli on January 19, 2022. Mahmud Turkia / AFP

Ali Noureddine

This article has been translated from Arabic.

As an oil-exporting country whose revenues typically increase in tandem with a rise in oil prices, Libya should have ranked among countries benefiting from this year’s spike in oil prices. As per figures from the Libyan National Oil Corporation, the country’s production of crude oil has risen to 1.211 million barrels per day, putting Libya in fifth place globally in terms of oil output.

In fact, Libya’s oil production recently saw a rebound after the Libyan National Oil Corporation re-activated a number of oil fields that had previously been shut down following security incidents. Furthermore, according to the Energy Research Unit, Libya ranks 10th in the world in terms of proven oil reserves, with total reserves of nearly 48.4 billion barrels.

Failure to benefit from competitive advantages

The Libyan economy could have benefited from advantages; besides the country’s oil reserves and production it is well known that Libya possesses other natural resources, which today are increasingly important in light of the rising prices of exports of raw materials. This wealth includes, for example, iron, uranium and gold reserves, which require investments in order to expand exploration and extraction.

Libya also has a long coastline that extends about 1,770 kilometers along the northern coast of Africa, that could provide the country with a wealth in fishing that has yet to be exploited. And perhaps the country’s biggest advantage is its relatively small population of just 6.96 million people, according to World Bank statistics. This indicates a small population density compared to the size of the country’s wealth and its huge area, which exceeds 1.75 million square kilometers.

Yet even with all these favorable conditions, Libya, still suffers from an ailing economy that augurs a looming living crisis. According to United Nations reports, poverty rates in Libya exceed 40 per cent, while estimates from the Center for Social Studies at the Ministry of Social Affairs put that figure at more than 45 per cent.

This is a clear indication that Libyan families have not benefited from the significant oil sales revenues, with U.N. estimates showing that 1.3 million or around 23 per cent of the country’s total population, are in urgent need of humanitarian aid. Further exacerbating conditions are the devaluation of the Libyan dinar against the dollar and rising inflation rates, which today increase living pressures on the most vulnerable segments of Libyan society by eroding the value of their wages and reducing their purchasing power.

Painful living crises

The most prominent living crisis facing Libyans today is rising unemployment rates, which recently reached 19 per cent. The Libyan public sector is most affected by the crisis, which employs more than 85 per cent of the country’s workforce, according to World Bank figures.

This huge percentage reflects weak activity in the private sector and its inability to grow and create job opportunities for Libyan youth. The high percentage of employees in the public sector also reflects a concealed form of unemployment, namely having a far greater number of employees than is actually needed.

The private sector, meanwhile, is witnessing a decline in its ability to create jobs due mainly to security incidents and the civil war in Libya since the fall of Muammar Qaddafi’s regime. These have led to the closure of a large percentage of the country’s factories, in addition to the destruction of the tourism sector, which had been critical for the country’s economic growth in the past.

Alongside the high unemployment rates in Libya, inflation rates rose to unprecedented levels this year due to the convergence of several factors. These include the repercussions of the war in Ukraine, global inflation rates, pressures on the value of the Libyan dinar, and the scarcity of goods resulting from the civil war.

Making matters worse was the division of the Libyan Central Bank alongside the division of Libya’s political institutions, which prevented it from dealing efficiently with these monetary and economic challenges. Central banks around the world typically manage such difficulties using an assortment of monetary policy tools that include adjusting interest rates, controlling the money supply and foreign currency reserves, as well as a host of other measures.

However, the division of the Central Bank of Libya prevented the development of a coherent and unified monetary policy of this sort.

Impact on women and the most vulnerable groups

Dire economic and political conditions, as well as the resulting fragility in state institutions, often result in serious security and social repercussions. The groups that typically are most affected by these repercussions are the most vulnerable social strata, women and children.

During the first five months of 2022, Libya witnessed 137 killings due to widespread poverty, security turmoil, weakness of security institutions, as well as a growing culture of private individuals owning and using weapons. Particularly striking are successive crimes which targeted Libyan women, either for social reasons or for the purposes of armed robbery. In fact, MENA feminist platform “Sharika wa Laken” registered as many as seven crimes targeting Libyan women in a single week, a record number compared to other Arab countries.

Human rights sources usually indicate that the harsh living and security conditions in Libya coincide with local conditions that facilitate the targeting of these vulnerable groups. Especially concerning is the manner in which tribalism provides a degree of leniency and facilities for criminals by way of deals and reconciliations that tend to occur following the crime.

According to Libyan criminal laws, the victim’s family has the right to settle for reconciliation with the perpetrators in return for receiving “blood money” (i.e. a financial fine), which precludes any further personal rights in the crime. In such cases, the state takes no further action against the offender unless the public prosecutor chooses to do so, which is rarely the case.

Looming disaster

At the moment now, Libya clearly seems to be heading toward a humanitarian catastrophe.

Markets are suffering from supply shortages in many types of food due to disruptions in supply chains, cash crises and security incidents that threaten port operations. With Libya relying on imports for 85 per cent of its needs, the market has become increasingly vulnerable to any political, monetary or security developments that threaten supply chains.

In addition, the armed clashes between the parties to the conflict pose a constant risk to operations at the Libyan oil fields, which threatens to deprive the state of the last remaining sources of revenue needed to pay wages and provide public services.

In the meantime, the repercussions of the ongoing war in Ukraine war continues as expected to sustain the pressures on the markets of developing countries such as Libya, especially in terms of rising food prices. It is worth noting that Libya historically imported half of its wheat needs from Russia and Ukraine, a fact that underscores the war’s direct impact on the country.

Amid these challenges, the power struggle in Libya continues in the form of rival governments each disputing the other’s legitimacy, and in the presence of militias with a strong influence over the course of this political conflict.

At the same time, foreign interventions continue to fuel these divisions and drive the conflict in a country with significant oil reserves. Thus, the political crisis itself has become a major contributor to the state’s paralysis, preventing it from playing its role toward economic recovery.

As a result, one of the world’s largest oil-producing states has become a nation in despair, suffering from a stifling economic and social crisis that illustrates the dangerous consequences of an inept public administration and failed political leadership.

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