A complex and delicate reunification process

Efforts to guide the country’s institutional, political, economic, financial, and military reunification continued throughout 2021. Following the UN-brokered ceasefire agreement of October 2020 between Marshal Haftar’s Libyan National Army (LNA) in the east and the Tripoli-based Government of National Accord (GNA) in the west, a three-member Presidential Council representing the three regions and chaired by Mohamed al-Menfi, and an interim Government of National Unity (GNU), headed by Prime Minister Abdelhamid Dbeibah and bringing together the rival groups, were established in March 2021 by the 75-member UN-appointed Libyan Political Dialogue Forum. However, in September 2021, the eastern-based House of Representatives passed a dubious vote of no-confidence in the GNU because the government had exceeded its interim powers. The prime minister declared that he would continue to fulfill his duties. Even though the electoral process and the role of the president were unilaterally decided by the House and contested by the western-based High Council of State (Senate), presidential and parliamentary elections are scheduled for this year at an unspecified date. A constitutional referendum is also planned. This timetable deviates from that initially envisaged in the Berlin Process under the joint presidency of Germany, France, and Italy, and UN supervision, which made the holding of elections conditional on the adoption of a constitution, the reunification of the country, which has been divided since 2014, and departure of the estimated 20,000 foreign fighters. This withdrawal, steered by the Libyan Joint Military Committee under the supervision of the United Nations Support Mission, which was supposed to take place in January 2021, will depend on the goodwill of the fighters’ backers. Problems and uncertainty surround acceptance of the election results, the following steps towards reunification (reunification of the two central banks, banking systems, and armies), and the end of external interference.

An oil- and security-dependent economy

The dizzying growth of 2021, linked to the resumption of oil activity, will give way to a more reasonable growth rate in 2022, as oil production rises from the 2019 level of 1.15 million barrels per day (b/d) to 1.25 million while the average Brent crude prices remain favorable. This will affect exports (48% of GDP), of which oil and gas make up 87% and 5%, respectively. With exports set to outpace imports, the contribution of trade to growth will remain positive. Any new security attack on facilities (blocking ports, sabotaging pipelines) would call this scenario into question. Household consumption (68% of GDP in terms of demand) will benefit from this oil boom and the improved institutional situation. Inflation, which surged in 2021 following the 70% devaluation of the official dinar rate in January, should ease. However, a deterioration in the health situation, which is still possible, with only 7% of the population fully vaccinated as of 4 November 2021, would cool household sentiment. In addition, there needs to be more cash availability at banks due to the reluctance of economic participants to deposit their assets. The investment will remain low. Despite the strong potential, foreign investors remain cautious due to insecurity and the dilapidated state of the country’s infrastructure. However, several foreign companies have decided to conduct development drilling in the Sharara field; the national oil company (NOC) and Total will launch the construction of gas projects worth USD 3 billion, while ENI and Total are set to work on two photovoltaic projects. In February 2021, the Tripoli-based NOC saw the return of its breakaway eastern branch. However, the NOC’s powerful chairman Mustafa Sanalla continues to have a stormy relationship with the energy minister, reflecting the stakes in controlling oil resources. Public investment, hitherto ephemeral, should benefit from the improved institutional and security situation and the creation of a fund for the development of the “oil crescent” region and the southeast, with a view to sharing the oil windfall more effectively.

Surplus accounts, thanks to oil and comfortable reserves

The budget for 2021, which was to be agreed on only at the end of the year because of “reunification” challenges, showed a substantial surplus, thanks to the surge in oil revenues (55% of revenues). The 2022 budget is also expected to show a surplus, albeit a smaller one, due to a more significant increase in expenditure, in which salaries and subsidies account for a substantial share. Therefore, the “two” central and local commercial banks will not need to be called upon. Public debt, which is mainly domestic, should consequently decrease.

Hydrocarbon exports will maintain a considerable surplus in the balance of goods, which will be only slightly impacted by the services deficit linked to hydrocarbon development. The country’s external debt is only 14% of the GDP. The reserves of the two central banks still stood at USD 50 billion at the end of 2020, despite being drained over the year to finance the budget and provide foreign currency to importers. The currency’s peg to the Special Drawing Right (SDR), the IMF’s unit of account, is not expected to be threatened. In November 2021, the parallel rate was only 4% higher than the official rate. In addition, the Libya Investment Authority, the country’s sovereign wealth fund, held over USD 68 billion at the end of 2019, although these funds have been frozen since 2011 by UN resolutions.