Previous Quarterly Editions
Expropriation Risk: 83 83 71 78 Political Violence Risk: 74 74 73 68 Terrorism Risk: 55 55 55 55 Exchange Transfer and Trade Sanction Risk: 82 82 82 82 Sovereign Default Risk: 75 75 83 75
TREND ▼
The appointment of the interim Government of National Unity (GNU), Libya’s first unified executive since 2014, has raised hopes that the country can move beyond seven years of civil conflict. However, significant challenges remain. Elections planned for December 2021 should help temper political uncertainty but given the slow progress in unifying military forces and disarming militias, security volatility is likely to persist despite a ceasefire agreed last October in 2020.
Prime Minister Abdulhamid Dabaiba has formed an unwieldy cabinet of more than 30 ministers and drawn up an overly ambitious programme for government (his proposed budget of almost LYD100bn, equivalent to USD22.3bn, is now being revised after it was rejected by parliament) given his short mandate.
Instead of focusing on the GNU’s primary task of preparing the country for elections and tackling a long-standing electricity crisis as well as the COVID-19 pandemic, Dabaiba has promised construction projects to local authorities across the country, raising concerns that state expenditure may balloon, and that corruption become more entrenched. Dabaiba himself remains the subject of controversy due to allegations of vote-buying by his associates at the Libyan Political Dialogue Forum, where he was chosen as interim prime minister in early February 2021.
A nine-month blockade of oil terminals and fields in 2020 meant hydrocarbons-dependent Libya recorded one of its worst economic performances last year. If the unification agenda remains on track this year, however, a significant economic recovery is possible. The National Oil Corporation aims to increase crude production to 1.45 million barrels per day by the end of 2021. The economy is expected to rebound by 20.9% due to increased output. Libya’s multiple economic challenges have been further aggravated by COVID-19 though the GNU’s recently launched vaccination programme is making progress. The country’s healthcare system, already close to collapse before the pandemic, is struggling to deal with a surge in cases and needs massive investment.
The GNU is already showing signs of expecting to remain beyond its original mandate. Many Libyans want to see the planned elections take place in December 2021, but others believe they could cause an escalation in violence. At present, there is no constitutional framework for such a ballot. A draft constitution has not yet been put to a referendum. Given these challenges, the prospect of the GNU remaining in place well into 2022 cannot be ruled out. Furthermore, the underlying military, political and economic divisions that have driven the civil conflict since 2014 remain capable of derailing the reunification process, as do competing external actors allied with domestic factions.
TREND ▲
Dabaiba has sought to present Libya as open for business but significant obstacles to investment remain. The brittle security situation poses a substantial threat to all sectors, particularly the oil and gas industry. After years of conflict, key energy infrastructure is in a pronounced state of disrepair and requires considerable investment.
Dabaiba’s decision to appoint an oil minister, industry veteran Mohammed Aoun, most recently Libya’s representative at OPEC, indicates that his government intends to keep close control over the energy sector. This may bring it into conflict with the leadership of the National Oil Corporation, which has grown more proactive in recent years in the absence of an oil ministry.
Overhauling the hydrocarbons sector does not appear to be a priority for Dabaiba. Instead, he is focused on reconstruction efforts, including the country’s power crisis. On the broader investment front, the short mandate of the GNU means that major deals are more likely to be struck following the planned elections in December 2021.
General Khalifa Haftar’s continuing ambivalence towards the GNU is a cause for concern, raising the possibility that he may resort to previous tactics, including military escalation and oil blockades, to assert himself. The ceasefire agreed between Haftar and his opponents in October 2020 remains fragile and confidence-building measures between the two sides have been piecemeal.
Nationwide anti-corruption protests in August 2020 were a reminder that popular discontent can easily boil over. The grievances that drove those demonstrations remain unaddressed and the GNU may be faced with similar protests if it fails to improve living conditions.
Violence may erupt during the run-up to planned December 2021 elections, as various factions try to position themselves for Libya’s first national ballot since 2014. More generally, the security situation may not be conducive to free and fair elections, particularly in Haftar’s stronghold of eastern Libya, recently shaken by a series of assassinations.
TREND ►
Islamic State (IS) and Al-Qaida in the Islamic Maghreb (AQIM) remain present in Libya, with their networks concentrated mostly in southern and central regions. In 2020, forces aligned with the Tripoli government and their rivals under Haftar’s command arrested high profile individuals, including the leader of IS in Libya, Abu Moaz al-Iraqi, and disrupted terrorist cells in several parts of the country, contributing to a decrease in attacks since. The threat from IS remains moderate: the organisation continues to maintain sleeper cells in Tripoli and other coastal cities. Meanwhile, AQIM is considered largely dormant.
With Libya’s economy largely dependent on oil revenues, a nine-month blockade of critical oil facilities by Haftar’s forces in 2020 made it difficult for the monetary and fiscal authorities to defend the country’s currency peg. Last December (2020), for the first time in five years, the board of directors of the Central Bank of Libya agreed to devalue the currency to LYD4.48:USD1.00.
This new rate is supposed to apply to all governmental, commercial and personal foreign exchange transactions. It will also help narrow the increasing gap between black market and official rates. The central bank, divided since 2014 due to the wider national power struggle, has taken steps to reunify. However, tensions remain, particularly regarding the role of Sadiq al-Kabir, the long-serving governor. Disputes over central bank management will hamper the implementation of wider economic reforms.
To mitigate the extreme deficit caused by the nine-month oil blockade in 2020, the government slashed public sector salaries and reduced subsidies, particularly on fuel. A tax on foreign exchange sales introduced in late 2018 has also helped to ease the pressure on public finances.
In 2021, the resumption of oil production will improve public accounts, but revenue streams remain vulnerable to domestic volatility and global oil price shocks. The rebalancing of the current account deficit will alleviate pressure on Libya's foreign exchange reserves (estimated at under USD70bn in mid-2020), which the central bank used to try to maintain foreign currency supply to the market that year.
Libya’s external debt is one of the lowest globally, estimated at 5.8% of gross domestic product in 2017, but domestic debt has increased significantly in recent years. Most of Libya’s sovereign wealth fund has been frozen under UN sanctions since former Libyan leader Muammar Gaddafi’s fall in 2011; its assets were valued at USD67bn in 2012. Requests by the Libyan authorities to lift the sanctions have been refused because the United Nations wants to see a stable government in place before doing so.
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