Libya: Risk Assessment
Country Risk Rating
Business Climate Rating
- Large oil and gas reserves (the largest in Africa)
- Very low external indebtedness
- Large foreign exchange reserves, sovereign funds
- Strategic positioning in the Mediterranean, proximity to Europe
- Country divided in two: Tripolitania in the west, managed by the Government of National Accord, led by the Prime Minister of the Presidential Council, Fayez-al Sarraj, recognized by the international community; Cyrenaica in the east, supported by Marshal Haftar
- The south of the country (Fezzan) faces the proliferation of trafficking (human, arms, drugs) and animosity between Tuaregs and Toubous.
- Economic and financial fragmentation superimposed on political and tribal divisions
- Selective currency access for importers
- Deficient business environment (186/190 in the Doing Business 2020 ranking)
- Destruction of a large part of the country's infrastructure
Slim hope for elections in 2021 and a highly deteriorated security situation
The attack on Tripoli between April 2019 and June 2020, the blockade of oil ports and terminals between January and September 2020, and the health crisis, have created the most severe crisis that Libya has faced since 2011.
Indeed, undermined by the political fractures that reappeared following the 2011 revolution, Libya is a divided territory. Two authorities are vying for power: the self-proclaimed Libyan National Army (LNA) of Marshal Khalifa Haftar in the East and the internationally recognized executive Government of National Accord (GNA) based in Tripoli in the West. Following an offensive against Tripoli launched by Marshal Haftar in April 2019, the country was plunged into a new period of open civil war between the two rival authorities, fuelled by interference from foreign powers (support for the GNA from Turkey and Qatar and for the LNA from the UAE, Russia, and Egypt). The battle of Tripoli ended in June 2020 with the expulsion of the LNA from the suburbs of the capital. A ceasefire agreement, signed on 23 October in Geneva under the aegis of the UN, subsequently brought the fighting to a halt.
The United Nations Mission of Support to Libya (UNSMIL) confirmed in November 2020 that the two parties had agreed to hold parliamentary and presidential elections in December 2021. However, since the new form of the institutions has not been agreed upon, it is unclear as to which bodies Libyans will be asked to vote for. Moreover, while the Geneva Agreement provided for the withdrawal of foreign troops by 23 January 2021, the GNA indicated that the agreement did not concern Turkey and signed a new military cooperation agreement with Qatar.
Economy dependent on the evolution of the conflict and oil activity
The collapse in growth is explained by the near stoppage of the oil sector during the first three quarters of 2020, even though it accounts for 60% of GDP. The blockade of production was in fact due to the armed militias of the Libyan National Army. After 8 months of blockade, Marshal Haftar announced its lifting in August 2020. According to OPEC, oil production went from 1.1 million barrels per day in December 2019 to 107,000 between February and September 2020, a loss in revenue of 95.5% according to the National Oil Corporation. Since the lifting of the blockade in September, production recovered rapidly, to 1.2 million barrels per day in mid-November, and should continue to do so in 2021, provided no political crisis occurs. However, the degradation of the infrastructure will cost billions of dollars and will require the arrival of foreign investors, who are cautious given the situation in the country.
Aside from the problems related to the oil sector, household consumption (up to 80% of GDP in some years), affected by falling incomes and social distancing measures, fell by 15% in 2020 and is expected to rise by only 3% in 2021. Local private investment is expected to remain low due to the persistence of high uncertainties. The economy has also suffered from currency depreciation on the black market (54% in the first half of 2020) linked to the scarcity of foreign currency, which has widened the gap with the official exchange rate. With the boom in oil revenues, the depreciation should stop in 2021.
Very large twin deficits
The public balance was plunged into an extreme deficit in 2020. Indeed, 55% of public revenues are dependent on oil. However, in 2020, oil revenues are expected to have accounted for only one-fifth of 2019 revenues. To limit the deficit, the GNA cut civil servants' salaries by 20% and reduced its subsidies, particularly on fuel. Furthermore, the tax on foreign exchange sales introduced in December 2018 helped to slightly alleviate the pressure on public finances. The deficit is financed by the Central Bank, but also by local commercial banks, which explains why most of the debt is domestic. In 2021, the resumption of production and the rise in oil prices will improve public accounts.
The 80% drop in exports (97% of which is made up of oil exports) explains a very large part of the huge current account deficit in 2020. In 2021, the lifting of the blockade and the rise in oil prices will allow a 198% increase in exports of goods according to the IMF. By contrast, however, imports are expected to pick up sharply. The structural deficit in services will remain significant given the country's dependence on foreign companies to service its oil industry, while the primary income surplus resulting from investments held abroad will persist. In 2021, the reduction of the current account deficit will alleviate the pressure on Libya's foreign exchange reserves (USD 74 billion at the end of May 2020, more than 20 months’ worth of imports), which the central bank has used to try to maintain foreign currency supply to the market in 2020. Moreover, Libya has a sovereign fund estimated at USD 60 billion in 2011, which has since been frozen by the decision of the UN.