Recession Inflation Haunts Libyans
The Libyan national currency lost about 68% of its value since the beginning of 2020. This loss is attributed to the weakness of the Libyan macro-economic foundations. It is also directly connected to the low oil exports and the restrictions that the Central Bank of Libya imposed on selling foreign currencies. At the beginning of December 2020, the Libyan Dinar (LD) recorded an exchange rate of 6.71 LD for each 1 USD in the parallel market. The current exchange rate has to be compared with a 4 LD rate at the end of 2019. At that year, parallel market exchange rates were close to their official taxed counterparts.
The internationally acknowledged Libyan government imposed in September 2018 fees on trading with foreign exchange. By this it aimed at reducing the variance between the official exchange rates and those of the parallel market.
A deficit in the balance of payments of about 2.1 billion USD has been recorded in 2019. Furthermore, public budget’s deficit spending increased to 10.9% of the GDP compared to 7.4% in 2018. Nevertheless, an exchange rate of 4 LD for each 1 USD at the end of 2019 is considered to be the highest phenomenal leap of the LD between two years. Here, it is noteworthy to know that the US dollar exchange rate amounted to 9.2 LD in the parallel market in 2017.
This leap in the exchange rate gave high hopes for the Libyan economic growth, covering by this the country’s imports needs for about 3 and half years to come. However, the Libyan economy was exposed to several overlapping shocks in the 1st half of 2020, causing the local currency to plummet again.
With the rising local conflicts, the country’s main source of foreign currency has stopped due to the closure of the main oil fields and the restriction imposed on the economic activities. In addition to the low oil prices, earnings of the remaining oil fields exports were no longer sufficient to cover the country’s foreign currency needs. Providing the aforementioned needs would have supported Libya’s supplies of productive machinery, equipment and end-user goods. Besides, the outbreak of Coronavirus pandemic (COVID-19), which imposed more restrictions on trade exchange, has deprived Libyans from reaching Tunisia; the closest source of food supplies.
Growth rates of the Libyan GDP recorded a cumulative growth of over 67% between 2014 and 2019. However, growth relapsed in 2018 and 2019 to record 15.13% and 2.54% respectively. This forced Libya to face stagflation (recession-inflation) as a result of the economic growth frailty and the rapid continuous increase in prices of goods and services.
IMF estimates that the Libyan economic growth will achieve gains of 3.9% during the period extending to 2023. However, hope is conditional on stopping the political and military rivalry. Furthermore, hope is directly connected to solving the dilemma of an economy based on oil revenues by more than 95%. Growth is that connected to creating a diversified and investment-attractive economy. Such an economy will, on the one hand, give a boost to a productive private sector. On the other hand, it will support exports.
The opinions expressed in this publication are those of our bloggers. They do not purport to reflect the opinions or views of Fanack or its Board of Editors.
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Yahya ibn Abi Kathir (769-848)