THE ECONOMIC IMPACTS OF THE POLITICAL DIVISION IN LIBYA · the Libyan communities. Despite the fact...

THE ECONOMIC IMPACTS OF THE POLITICAL

DIVISION IN LIBYA

PREPARED BY: ANAS JABALLAH

5102

www.loopsreseach.com

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The

Imp

acts

of

the

Po

liti

cal

Div

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n i

n L

iby

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mailto:[email protected]

املنــــظمة الليبية للســــياسات وإلاســـــتراتيجيات

Libyan Organization Of Policies & Strategies

The Economic Impacts of the Political

Division in Libya 1

INTRODUCTION

The defeat of Gaddafi during the Libyan

revolution was only, despite its

importance, the beginning of the

emergence of armed conflicts between the

people of Libya, where progress toward

building a Libyan peaceful and well-

established state in the aftermath of

Gaddafi era has been slow and

retrograding. In reality, the recent security

breaches and the spread of violence in the

country and its expansion to the

neighboring countries of North Africa has

shown the instability and the deteriorating

of the current situation. The armed conflict

in Libya has recently caused increase in

the numbers of emigrants inside Libya,

which exacerbated the living conditions

crisis of the Libyan people; thus the crisis

of bread and fuel has aggravated, besides

the power outages and the delayed

payment of salaries and the deficiency of

medicines of all types. This deterioration

has affected all sectors.

In this regards, Libya witnessed during

2014 a state of instability caused by the

events it has been going trough and still is

until now, among which the political and

military division that resulted in aggressive

disputes and duplication of authorities, the

continuation of the closure of ports and the

oil fields, the large number of strikes,

armed incursions of the state’s

headquarters, the armed clashes, and the

subsequent civic disobedience phase, in

addition to the emergence of bodies that

are parallel to the sovereign state

institutions, as well as the race toward

Spending to gain loyalties and prove

legitimacy.

The duplicity of the authorities is

considered the most difficult event, and the

one with the most impact on the country,

where several authorities took the

functions of legislation and

implementation after the June 2014

elections and the rise of debate over the

legitimacy of conducting the sessions of

the new power represented in the House of

representatives in the city of Tobruk which

was rejected by the National Congress.

As a result, the political, social and

military division has been exacerbated

along with a high frequency of fighting

and poor security conditions. This

situation has worsened the management of

the government institutions, and led to

poor performance, squandering of money

and capabilities and rampant corruption1.

With the continuation and expansion of the

scope of the political division in Libya,

which is moving towards the oil crescent,

and the increase of the humanitarian and

economic suffering of the Libyan citizen,

features of an economic collapse and

humanitarian tragedy seem to emerge as a

consequence of the escalating and

deteriorating of the basic services and the

lack of basic needs for citizens such as

water, medicines , electricity, gas, food,

security and the right to movement in

1 The annual report of the Audit Bureau

for 2014, p. 16

http://www.alaraby.co.uk/economy/080b6695-8e71-47f3-8643-fae5a6bdf256

http://www.alaraby.co.uk/economy/080b6695-8e71-47f3-8643-fae5a6bdf256




Division in Libya 2

order to pursue economic interests, and

obtain one’s needs. In addition to the

growing security threat, violence and the

human suffering.

Libya's economy is on the brink of

bankruptcy due to the escalation of armed

conflict between the fractions on one hand

and the global fall of oil prices on the other

hand, which negatively affected the oil

sector that constitutes 95% of the country's

revenues. International reports are warning

from a bankruptcy in Libya and depletion

of foreign exchange reserves in 4 years, in

case the political and security unrest

continue.

In the midst of the complex financial crisis

and the growth of the political division in

the country, a further decline in the state's

public revenues is expected causing a

historic unprecedented deficit, alarming of

exponential repercussions of dire and

unpredictable consequences that reaches

the lives of citizens and their security. It is

no longer inevitable to establish

fundamentals to get out of the crisis and

deal with its effects, which will not be

doable in short terms while pursuing

regular procedures; however it requires

cooperative efforts and complementary

roles.

Realizing the grave impact of the

political division on the country’s

economy, this research paper sheds the

light on these impacts through three main

chapters.

First: a brief theoretical framework on the

economic impact of the political division

in the countries, Second: the economic

repercussions of the political division in

Libya, Third: the appropriate alternatives

to limit the economic effects amid the

political division crisis.

1. A Theoretical Framework of the

Economic Impact of the Political

Division

The political stability is considered as the

criterion of success of the economic

policies of the political regimes, which

pleases the society. When the political

regime is stable, it points its economic

policies towards development, and these

developmental policies are what raise the

standards of living and comfort of the

individuals, which creates a kind of

tranquility and popular consent with the

political regime, whereas the opposite

happens in the cases of political division.

Theoretical trends and practices have

established a general principle related to

the importance of guaranteeing the

commitment of all the state’s institutions

to accountability, transparency and

impartiality in the provision of goods and

public services. However, during the

political conflicts, the situation is

obviously different in some countries.

These objectives could remain elusive,

although they become more persistent

because of the several negative

repercussions that are imposed by those

conflicts, which lead to the increase of

poverty rates, the collapse of the local

currency, deterioration of cash reserves

and the increasing numbers of refugees.2

2 Is it possible to maintain the neutrality of

economic institutions in Libya? Regional Centre for

Strategic Studies, Cairo, 09/03/2015.




Division in Libya 3

On the Libyan aspect, the fighting for

influence and control over resources in the

various parts of Libya, which is suffering

from sharp divisions since the fall of

Muammar Gaddafi's regime, was

accompanied by changes in the tribal

loyalties.

The local disputes were reflected in the

broader political context in Libya, which is

fraught with tension due to the existence of

two governments, two parliaments, forces,

and rival ideologies.

The below table illustrates the powers that took over the country during the year of 2014.

Time Period Legislative power Executive Power (chaired

by)

1/1/2014 – 9/3/2014 The General National Congress Ali Zidan

9/3/2014 – 4/5/2014 The General National Congress Abdullah Al-Thinni

4/5/2014 – 9/6/2014 The General National Congress Ahmed Mitig

9/6/2014 – 4/8/2014 The General National Congress Abdullah Al-Thinni

4/8/2014 – 25/8/2014 The General National Congress – the

House of Representatives

Abdullah Al-Thinni

25/8/2014 – 31/12/2014 The General National Congress- the

House of Representatives

Abdullah Al-Thinni - Omar El-

Hassi




Division in Libya 4

At the end of 2014, the last event that is

related to the state’s powers is the verdict

of the Supreme Court for the

unconstitutional amendment which

endorsed the elections of the House of

Representatives. After this verdict, all the

powers continued exercising their

functions, while the General National

Congress continued exercising its work in

the city of Tripoli and the House of

Representatives in the city of Tobruk, in

addition to the governments of Abdullah

Al-Thinni in Al-Bayda and Omar El-Hassi

in Tripoli.

2. The Economic Repercussions of

the Political Divide in Libya

The political division in Libya led to

several important economic repercussions

and impacts we state them as follow:

2.1 The Economic Impact of the

Political Division on the Libyan

Economic Institutions

The escalating conflict in Libya since the

fall of the former president Muammar Al –

Gaddafi in 2011, which has resulted in the

emergence of two governments and

parliaments, raises many questions about

whether or not the main economic

institutions in the country, especially the

Central Bank and the National Oil

Corporation could commit to neutrality in

the provision of goods and public services

and stay away from the conflict, in

particular in the light of the pressures

imposed by some political parties and

armed militias on those institutions, which

at the end, it may trigger negative and

serious repercussions on the political,

economic and security levels.

Libyan Central Bank

All the competing factions in Libya are

seeking to control the central Bank,

because of its control of the financial

assets of the state, its possession of nearly

$100 billion and it control over the

petroleum sales which represents 95% of

the country’s revenues. The bank plays an

important role in the country thanks to its

full control over the whole Libyan banking

system. For this reason, protagonists from

all factions tried to impose their influence

on the bank since the Revolution in 2011.

It is noteworthy to point out that the

interest to control the Libyan financial

resources is the real motive in the ongoing

war between the armed groups, tribes and

the military forces. Libya is about to have

its assets frozen by the international

community as a result of the current

conflict over controlling the Central Bank

of Libya.

Recently the Central Bank of Libya

constituted the axis of political pressure

when the decision of the House of

Representatives in Tobruk to dismiss the

Governor of the Central Bank of Libya,

AL-Siddiq El-Kabir, comes as a big

surprising step that deepened the division

and the political tension that dominated all

the Libyan communities. Despite the fact

that. The governor of the Central Bank of

Libya asked all the Libyan factions not to

get him involved in the political conflicts

between the General National Congress in

Tripoli and the elected parliament in

Tobruk. The Central Bank of Libya is the

primary sponsor of the funds of Libyan

people and the last bulwark to defend it

and it is also considered as part of the




Division in Libya 5

International Monetary Fund of the United

Nations. The latter officially recognizes

the parliament as the legitimate

representative of the Libyan people that is

why as soon as the governor was

dismissed all his signatories were invalid

abroad.

What has increased the sharpness of the

financial problems in Libya is the break

out of a wave of bank robberies, which

urged the Central Bank to refrain from

supplying the commercial banks with the

hard currency, which has exacerbated the

shortage of the dollar in some economic

sectors and further weakened the Dinar.

Because of the insecurity, some of the

insurance companies have become less

willing to provide insurance to cover the

cash of dollars from the Central Bank

accounts outside Libya.

It is expected to reduce the Libyan credits

rating because of involving the central

bank, among the biggest international

financial institutions, in conflicts.

The ongoing division and political

conflicts in Libya and the existence of two

parliaments, one in Tripoli and one in

Tobruk is alarming of a division in the

central bank itself, which could contribute

to the freezing of the central Bank’s assets

abroad, after it was released in 2012 by the

security council, and reached in that time $

120 billion.

There is no doubt that this measure will

prolong the crisis which will give greater

opportunity to foreign countries to

interfere in Libyan affairs to achieve

greater gains with respect to finance and

oil.3.

The Libyan National Oil

Corporation

The Libyan National Oil Corporation is

considered as the main entity to regulate

the oil and gas sectors in the country. The

strenuous attempts by various parties,

since the widening of the scope of armed

confrontations, to control the institution

have urged the latter to issue several

statements, in which it emphasizes its

commitment to distancing away from that

conflict.

Despite that, there are several indications

that raise the like-hood of a significant

change in the policy that the institution is

committed to and that is represented in:

The change of leaderships:

On December 13, 2014 the government of

Abdullah Al –Thinni in Tobruk,

announced the appointment of Mabrouk

Abou Sif, a president of the of the

Governing Board of the National Oil

Corporation instead of Mustafa Sanallah.

It goes without saying, that these changes

were not recognized by the western

government.

Moving the headquarters: The main

recognized headquarters of the National

Oil Corporation are located in the capitol

Tripoli until to present; however, the Al-

Thinni government made sustained efforts

3 Anas Rakha, the circumstances and the

implications of luring the Libyan Central Bank of

the circle of political conflict, the Libyan Center for

Research and Development, in November




Division in Libya 6

before the end of 2014 to relocate the

headquarter to Tobruk. In this regard, on

December 20, the government adopted

new policy to collect the revenues of oil

without going through the Central Bank in

Tripoli, which is not under its control, and

requires the transfer of disbursements to

one of the branches of the Central Bank in

eastern Libya.

Security pressures: The Corporation was

subject to several security threats and

attempts by some organizations to control

it in January 2015. This situation raised

many concerns about the possibility of

some officials from the oil corporation in

Libya, under the pressure imposed by the

militias, to use the funds illegally and to

prevent it from reaching the eastern parts

to fund the public expenses.

The situation remains very ambiguous and

nebulous for most international investors

in the oil sector, who are passively

observing the ciaos in Libya, just like the

majority of the international community4.

Recently, the conflict in Libya has

obviously moved to oil, after the statement

made by the Ministry of Oil to pursue a

legal measures against the buyers of row

oil in case of bypassing the National Oil

Corporation, which is based in the capitol

Tripoli, making the oil sector, on which

the government is relying on as a source of

revenue, amid high-risk environment.

The warning of the Oil Ministry in Tripoli

comes as a response to the opening of a

bank account in United Arab Emirates,

belongs the National Oil Corporation in

4 Rebecca Murray, hostilities in the south of Libya,

the Carnegie Endowment for International Peace,

December 10, 2014

Tobruk as an attempt to collect the

country’s oil revenues.

The government of Tobruk appointed two

Governing Councils belonging to an oil

corporation under the control of Abdullah-

Al Thinni government and a new oil firm

was established also called the National

Oil Corporation, same as the existing

corporation located in Tripoli. The

government pledged to finalize the

payments of the oil sales through this

corporation, but the foreign buyers of

Libyan oil deal only with the National Oil

Corporation in Tripoli.

The existence of two governments in

Libya required the presence of two oil

ministers and two presidents of the

National Oil Corporation. The Oil

Minister5 belonging to the National

General Congress was prevented from

attending the meeting of the Organization

of Petroleum Exporting Countries (OPEC)

in Vienna at the end of November 2014,

while the Oil Minister nationally-

recognized government in Tobruk was

allowed to attend.

The oil revenues are distributed evenly

through the Libyan Central Bank, which

continues to enjoy autonomy.


Political Division on the Country’s

General Budget of 2015

The oil revenues have been the main

source of funding for two separate budgets

prepared by two rival governments

contending for power in Libya in the midst

5 Rebecca Murray, hostilities in the south of Libya,

the Carnegie Endowment for International Peace,

December 10, 2014.




Division in Libya 7

of the conflict over the fields and the

exporting oil revenues, insecurity and

political turmoil which led to the division

in most of the country’s institutions and

delayed the appropriation of the budget for

five months.

The National General Congress in Libya

approved the budget for the year 2015 of

nearly 43 billion Libyan dinars. The law

supported 98 members out of 100 and the

new budget was calculated based on the

average oil production in Libya, up to half

a million barrels per day and the price of

crude per barrel, up to $ 50.

The budget approval comes days after the

announcement of the dissolved parliament

in Tobruk, stating that it received the

proposal of the current year’s budget from

the government emanating from it, and

estimated at 44 billion dinars; thus, the

National General Congress budget is 2%

less if compared to the budget of the

Tobruk government.

The budget of the

House of

Representatives

The budget of the General

National Congress Data

11.2 13.0 Oil revenues

3.0 4.5 Taxes and customs revenues

0 7.0 Funds remaining form 2014 budget

14.2 24.5 Revenues total

21.0 18.9 Part 1: Salaries

6.8 6.3 Part 2: Facilitative expenses

5.2 6.6 Part 3: Development

11.0 11.1 Part 4: Support

44.0 42.9 Total of expenditure

29.8 18.4 Total of deficit in 2015

A table that illustrates the comparison between the budgets of the National General

Congress and the House of Representatives for the year 2015




Division in Libya 8

It is clear from the above table the

contradictory visions between the two

budgets in regards to the revenues

estimation, the anticipated expenses and

the size of the anticipated deficit for 2015.

In fact, the Libyan House of

Representative in Tobruk announced that it

had received from the interim Libyan

government emanating from it, a proposed

budget for the current year of 2015

estimated at 44 billion Libyan dinars.

The expenses of the general budget of this

year were divided into four sections. First,

the salaries that worth 21 billion dinars,

operating expenditures worth 6.8 billion

dinars, the development projects and

programs worth 5.2 billion dinars, and

support expenditures worth 11 billion

dinars, while the expected revenues will be

in the range of 14.2 billion dinars, of

which 11.2 billion dinars are oil revenues,

and three billion dinars sovereign revenues

from customs and taxes, and it is estimated

that the budget deficit will reach 29.8

billion dinars, and it is planned to fund it

by introducing the treasury bills through

the Ministry of Finance.

In return, the General National Congress in

Libya approved the general budget law for

2015 worth about 43 billion, with a deficit

estimated of around 18 billion dinars.

The budget expenditures include the

salaries expenses worth 20 billion dinars,

operational expenses of the government

worth 5 billion dinars, development

projects and programs worth 7 billion

dinars, and the expenses of support worth

13 billion dinars. As for the general budget

resources, the oil revenues for the current

year are estimated for 15.1 billion dinars,

besides the remaining provisions of last

year's budget has not been spent and worth

5 billion dinars, as well as sovereign

revenue from taxes and customs worth of

4.9 billion dinars. It is planned to finance

the budget deficit by introducing treasury

bills also through the Ministry of Finance.

The conflict between both Tripoli and

Tobruk rival governments contending for

power in Libya has extended to supporting

commodities. While the government of

Tobruk announced the retention of the

support, the Tripoli government

emphasized the need to raise it to reduce

the deteriorating budgetary deficit, due to

the worsening of the economic situation

caused by the political and armed conflict

in the country.

Therefore, the prevailing political division

is expected to affect the general budget to

cause a total paralysis. Libya is expected

to record the highest budget deficit among

oil-exporting countries in the Middle East

to reach 37.1% of GDP in 20156. In this

case the Ministry of Finance in Libya will

have to request from all other ministries to

further rationalize the expenditures from

the current year’s budget and comply with

disbursement in necessities


Political Division on the Foreign

Exchange Reserve:

The balance of the Central Bank of Libya's

foreign exchange reserves stood at around

76.6 billion dollars at the end of 2014

compared with 105.9 billion dollars by the

end of 2013, meaning that withdrawals

6 International Monetary Fund report on the

prospects for growth Middle East and North Africa,

Afghanistan and Pakistan in May 2015 area, in

April 2015.




Division in Libya 9

amounted to about $ 29 billion in just one

year, according to the Office of the Libyan

accounting in its annual report for 2014,

which means Libya spent more than a

quarter of its foreign exchange reserves in

2014 to compensate for the drop in vital

oil revenue, as a result of the political

divide.

The drop of the reserves by $ 29.2 billion,

to their lowest levels in many years, shows

that Libya, Member State in OPEC, is

probably approaching a financial collapse.

The court of Audit warned that a sharp

decline in foreign reserves indicates that, if

current spending policy continues, the

Central Bank of Libya and the economy

will collapse in less than two years.

One of the problems is that half of Libya's

foreign reserves exist only in the form of

cash or bonds denominated in major

currencies. The rest of the reserves are a

combination of hard-assets that are, to

some extent, hard to liquidate such as

shares in Italian and Bahraini banks or

Chinese bonds or deposits in African

francs, as well as some stalled investments

because of judicial disputes.

http://www.alaraby.co.uk/economy/2015/3/28/مصرف-ليبيا-المركزي-يطالب-بإجراءات-تقشفية




Division in Libya 10

The number of years after the depletion for the financial reserves in Libya

compared to some Arab countries

Source: International Monetary Fund report on the prospects of growth in the

Middle East and North Africa, Afghanistan and Pakistan in May 2015, April 2015.

It is expected that the central bank will

drain more foreign reserves as a result of

the political division and the drop in oil

prices, because the global oil prices

decline will contribute to the decline in oil

revenues, which will put such a pressure

on the country's budget.

A decline in the net official reserves in

Libya is also expected, according to the

average rate of the constant withdrawal for

the government.

It has become hard for the government to

liquidate assets which it owns, to spend on

the restoration of roads, schools and

hospitals, which causes more negative

repercussions on the Libyan economy.


Political Division on the Living

Conditions in Libya

In this phase, the Libyan citizen is living in

a state of uncertainty and fear, and in a

tragic bad condition. The citizen is

considered the first victim of the political

and military conflict. In fact, the crisis in

the big cities and the rest of the towns has

such a tremendous burden on citizens, who

are as a results suffering from the rush in

the overcrowded gas stations, the constant

and long cuts of power, and the poor

quality of the telephone communication

network. Besides that, the crisis of

liquidity among many banks, which were

obliged to close due to the lack of security

and protection measures and the repeated

armed robberies of the cars transferring the

funds from the Central Bank to other

banks and branches.





These repercussions such providing all

services to citizens, provision of liquidity,

resolving dilemmas related to the

provision of fuel to the citizens, are limited

to the Libyan citizen.

Libyans are suffering from a shortage in

provision of gas cylinders to citizens and a

high price of replacement of those

cylinders. The shortage crisis is due to the

lack of protection of gas companies’

warehouses, which are seized by the armed

militias. The vulnerability of some citizens

and their use of the situation by storing

these quantities and then trading them in

the black market is another reason for this

shortage.

While Libya is wandering in a state of

chaos, the government and parliament are

struggling to take control over a country

teeming with weapons and militants,

which overthrew Gaddafi in 2011, but they

are challenging now the power of state.

This led to the loss of $ 30 billion, a result

of ten months of protests in the oil fields

and export ports.

Medicine Crisis

Several hospitals in Libya are recently

witnessing a severe shortage in medicines

and medical supplies, which portends a

medical disaster in the country, which

hasn’t known security or political stability

since the overthrow of Gaddafi in 2011.

A series of hospitals in Benghazi were

closed due to the armed clashes, which has

increased the burden on one hospital in

Benghazi named “Benghazi Medical

Center”. A large number of citizens are

unable to get medical care or education for

their children.

Rivalry in Tripoli went beyond the

displacement of the population,

intimidating them and undermining their

property, to reach drug stores and

tampering with the lives of patients

through burning two stores and robbing

one.

In this regard, the pharmacies of the

capital exchanged medicines between each

other as a temporary measure to overcome

the acute shortage. Indeed, the pharmacy

provides only about 50% of the needs of

patients, while patients have to search for

the rest of their treatment for in private

pharmacies. This shortage could lead the

country iy to a medical catastrophe.

Energy Crisis and Disruption of

Water

Energy resources such as oil and

electricity fields are the target of organized

subversive activities carried out by armed

militias. Due to the lack of firm security

measures, the losses of the General

Electricity Company have increased and

were estimated at one billion dinars at the

end of 2014 as a result of the robberies,

looting and vandalism targeting its

headquarters.

The repeated and constant electricity cuts

caused disruption in everyday life

activities and have become a source of

inconvenience and noise for many citizens

because of the loud electricity generators

that are spread in the street of the capitol.

The electricity failure had a direct effect

on the performance of the pumps of the

water tanks, which completely stopped

working and led to water disruption.

http://www.skynewsarabia.com/web/article/719334

http://www.alaraby.co.uk/economy/f2c58050-9765-41d8-9a77-d0f0d2acec21





Citizens in Tripoli and elsewhere are

unable to get their monthly salaries after

the closure of the banks under the pretext

that people were not able to go to their

workplace due to the sharp decrease of

fuel and the dramatic increase of oil prices

including gasoline.

The situation of gas in Tripoli was not any

better than gasoline and oil. In fact, the

price of one cylinder in the parallel market

reached more than 60 dinars, which led to

importing from outside the city to trade it

while others are obliged to travel outside

Tripoli to fill a gas cylinder or gasoline,

which requires standing in the queue for

two days under the best of circumstances.

Food Crisis

Most of the cities in Libya are facing an

exacerbated food crisis because of a severe

shortage in food, especially in the city of

Zintan as a result of the continued closure

of banks and the lack of accessing cash

liquidity from the central bank for three

months. Two months ago, the shops were

also closed, following the failure of the

arrival of any food supplies to the city,

with an estimated population of about 33

thousand people.

The Clashes in Tripoli between

government forces and armed groups

affected the living conditions of citizens.

In fact, these clashes led to a severe

decrease in services and commodities,

leading to increase of 40% in prices, thus

banks stopped operating.

Although in the last three years there are

no accurate statistics about poor families,

the state allocated 120 thousand families,

“ deprived of wealth", who are receiving

assistance through the Economic and

Social Development Fund, which is going

through difficulties since nearly seven

months as a result of the lack of liquidity,

due to the worsening financial and

economic crisis.

Food and drug prices also rose in the

Libyan market, which suffers from a lack

of control, in light of the political and

armed struggle for influence over state

institutions, while salaries remained the

same. There is a constant demand from the

central bank to take austerity measures that

reached the social allowances for citizens.

Since the beginning of the year, the prices

of subsidized goods have been doubled in

the unofficial market, while it remain rare

in the customer association, among which

rice, sugar, tomato paste and vegetable oil.

Prices of some goods have increased in an

accelerating manner to go beyond the

double, such as kids’ milk, which reaches

more than 15 dinars instead of 6.5 dinars.

The Escape of Businessmen

Dozens of businessmen and rich people

escaped Libya accompanied by their

families of fear of kidnapping and armed

attacks on their belongings and properties.

In fact, most of them or their family

members have been exposed to extortion

carried by armed militias and those

violating the law during the recent wave of

violence in the country.

The goals of kidnapping are various

among which the blackmail and the

demand for ransom and the bargaining to

release one of the other kidnapped people.

Kidnappers usually target the companies’

owners and stockholders or one of their

http://www.alaraby.co.uk/Home/Getpage/9f48bcd0-a029-4e10-b363-6e2b89f51683/28945ffc-1df6-460c-8068-034c46985eb3





family members in the aim for obtaining

money through these heinous acts.

In Libya, there are prisons and jails that

even the government does not know

anything about and they are run by gangs

and armed militia. These groups are

moving freely in the cities, which are

under their control and especially the

bigger cities such as Tripoli and Benghazi

and there are unreported cases.

Consequently, the citizen with limited

income is the one paying the bill of

suffering at the end of the day amid the

armed conflict in the country, and the

increasing numbers of displaced people

where living conditions are getting worse

in the absence of political stability. In

addition, after the first quarter of the year

prices rose due to lower oil revenues in the

country, the depreciation of the local

currency in the black market to two dinars

to the dollar.


Political Division on the Economical

Indicators

During 2014, the Libyan economy

experienced a negative growth rate that

was shrunk by 20%. The budget deficit is

expected to reach $ 15.3 billion in 2015

and $ 25 billion in the balance of

payments. It is also expected that the

inflation rate in Libya will increase up to

12% in 2015 compared to 2% in 2014 and

the increase of deficit in the current

account to $ 22.5 billion in 2015 compared

to $ 15.2 billion in last year. In addition to

that, the reserves of the Central Bank in

Libya were dropped at the end of 2014 to $

131 billion dinars compared to $ 141

billion dinars at the end of 2013 and about

$ 149 billion dinars in 2012. It is estimated

in the event of a constant drop of the oil

prices and its stability in between 35 and

50 dollars for more than twenty months

without improvement, Libya will be forced

to sell its properties abroad and there is a

possibility of failure and deterioration of

the productivity of some public general

companies and the recourse to debt from

the private sector and abroad.

In light of expected continued decline in

foreign exchange reserves, Libya will

suffer imported inflation problem, raising

the cost of imports from abroad, which

would further exacerbate the deficit in the

trade balance during 2015. This means a

higher inflation rate especially higher

commodity prices, which will increase the

burden on the citizen and then on the

government that backs those commodities.

This will lead to a hunger revolution

especially that the basic commodities are

bought through the loss reserve. Thus, the

Central Bank can only protect the Libyan

dinar through raising the interest rates,

which is also a step that would raise the

cost of lending and funding at various

economic sectors and thus we get into a

vicious connected circle of crises.

It is estimated in the event of a constant

drop of the oil prices and its stability in

between 35 and 50 dollars for more than

twenty months without improvement,

Libya will be forced to sell its properties

abroad and there is a possibility of failure

and deterioration of the productivity of

some public companies and the recourse to

debt from the private sector and abroad.





In conjunction with the rising of the

current and capital expenditure that is

expected during the current fiscal year and

years to come to speed up the

implementation of the development plan

and the development of oil infrastructure

and projects, approaching the fiscal deficit

is expected in the medium term. While the

fiscal deficit is inevitable in the long term,

considering that the oil revenues will

continue to contribute about 90% of total

revenues.

It is likely that the current situation, with

the continuation of the political division

and the decline in oil prices, will cause

paralysis of the economic situation. In fact,

the drop of oil prices is expected to lead to

loosing many development projects,

disruption of the salaries of the public

sector employees and entering in a phase

of inflationary prices of goods and

services. The deterioration of the citizens’

living condition will be reinforced by a

reduction of the local production and

pressures on the Libyan foreign exchange

reserve in general and the Central Bank of

Libya in particular.

Repaying the foreign exchange resources

in 2015 means a reduction in the reserves

of the Central bank of Libya to the 35 and

50 dollars for more than twenty months

without improvement, Libya will be forced

to sell its properties abroad and there is a

possibility of failure and deterioration of

the productivity of some public companies

and the recourse to debt from the private

sector and abroad.

In conjunction with the rising of the

current and capital expenditure that is

expected during the current fiscal year and

years to come to speed up the

implementation of the development plan

and the development of oil infrastructure

and projects, approaching the fiscal deficit

is expected in the medium term. While the

fiscal deficit is inevitable in the long term,

considering that the oil revenues will

continue to contribute about 90% of total

revenues.

It is likely that the current situation, with

the continuation of the extent that might

threatens the cover of the Libyan currency

due in foreign currency and its value

facing the foreign currencies and their

purchasing power internally. This situation

will cause mass protests in the capitol

Tripoli and other major cities which will

increase the insecurity which threatens

Libya's stability7.

Consequently, we conclude from all these

indicators and numbers that Libya is

facing a suffocating financial crisis and a

continued insecurity chaos that caused

huge losses in oil production, the main

source of income, in addition to the

decline of prices and production of oil in

the country. This has raised doubts about

the capacity of Libya in providing the

required liquidity to cover the expenditures

during the current year, which resulted in

postponing the preparation of the 2015

budget indefinitely.

The consultations with the World Bank

confirm that Libya is on the verge of

7 Anas Rakha, estimate the position on

the role of Islamic bonds to finance the

budget deficit Libya, the Libyan Center for

Research and Development, 2011





bankruptcy at early 2015 in case of the

continuation of armed conflicts in the

country which will require instant and

urgent measures to be taken by the

government to rationalize the spending,

regardless how hard and painful these

measures are.


Political Division on the

International Level

On the international level, the Western

warnings to the two rival governments for

abusing the Libyan resources is aiming at

using the economy as a factor to put an

additional pressure on parties of the crisis

to reach a national consensus. Indeed, the

United States and five other European

countries warned that governments

institutions in Libya, which is dominating

national assets valued at billion dollars, is

threatened by the rival factions to control

the country.

In a joint statement, France, Germany,

Spain, Italy and Britain joined the United

States in calling for the use of economic

and financial Libyan and energy resources

for the benefit of the Libyan people as a

whole. The statement remains ambiguous

about the Libyan assets abroad and oil

revenues because it did not give

clarifications on actions that can be taken

in the case of ongoing security unrest in

the country and the fate of the Libyan

funds abroad.

The West is trying to use pressure about

the deteriorating economic and financial

conditions in the country that are dragging

Libya from the rank of rich countries to a

country that is surviving with the

international aids. Some are demanding to

include the oil corporation, the ministry of

finance and the Central Bank under the

international trusteeship until the political

conditions is stabilized.

The countries that are intervening in the

Libyan affairs are divided into western big

countries which contributed to the fall of

Gaddafi and are interested in the oil and

other interests, and others are interested in

the strategic depth and using Libya as a

supervision point in the southern

Mediterranean, from which it controls the

waves of illegal immigration. And there is

a second group which has interests through

intervening in the Libyan affairs, and this

group includes rich Arab countries fearing

the spread of the Arab Spring to their

region. These countries have already

intervened in the Egypt's affairs and

supported the Egyptian president

Abdelfattah El-Sisi, and now they are

asking him to intervene in Libya's affairs

and in return he receives support to solve

the energy crisis in Egypt.

Despite the harsh verbal exchange between

the political factions in Libya and putting

the blame on each other in an attempt to

take over Libya's money, they both reject

any international financial guardianship on

the Libyan institutions, amid concerns of

imposing this guardianship after the

warning statement released by the United

States and other five European countries in

a previous week, about the abuse of

Libya's wealth.

Following the failure of the dialogue

between the political factions in the





country, overseen by the United Nations,

both political opposing rivals, which are

the internationally recognized parliament

in Tobruk and the General National

Congress of Libya are concerned about the

international trusteeship over the money in

Libya.

According to some expectations, the

developments of the situation in Libya is

making the country a fertile ground for the

West's interests, particularly for Italy and

France to take measures that justify its

intervention in oil affairs, of a OPEC state

member, and announce an international

trusteeship on the Libyan financial

institutions.

2.7 The economic Impact of the

Political Division in the Long Term

The political division is expected to lead to

several negative repercussions in the long

term, and this as follow:

The duplication of expenses on the

same needs, and the increase of the

expenditures burden on both governments.

Implicating the country in unnecessary

loans and commitments.

Inability to inspect and review many of

the cases of the disposition of the public

money.

The disruption and accumulation of the

movements of the accounts and funds

especially, the operations that are related

to the banking and financial clearing.

Some parties and embassies avoid

reviewing their accounts.

The deterioration of the negative impact

on the revenues and on solving the oil

ports problems.

Libya's inability to fund its long term

development projects is expected while the

current political unrest continues.

3 Appropriate Alternatives to End

the Economic Impacts

Everyone in Libya should realizes the

difficult financial situation and that the

State is heading towards borrowing money

either by issuing treasury bonds or getting

loans, and therefore there will be no other

option, but to combine efforts and

implement a set of policies to reduce

spending and find other funding sources

and make some concessions to help the

country overcome this plight and rise

again.

In reality, the need to the government

intervention is bypassing the rule of law.

The government role includes setting the

required conditions to facilitate the return

of Diaspora, a dignified return, and safe

and secure return to their homes and re-

operating of services such as water,

electricity and schools in those regions.

Only a strong state can meet these

conditions.

Although reaching out to needy, poor and

those with limited income will remain

challenging, reaching a durable solution

for violence is the highest priority. Libya

does not need much of assistance but what

is more important is to reach a lasting

http://www.alaraby.co.uk/economy/2015/5/5/العشوائية-تهدر-مليارات-الدولارات-في-ليبيا

http://www.alaraby.co.uk/economy/2015/5/5/العشوائية-تهدر-مليارات-الدولارات-في-ليبيا





solution to end the fighting through

involving the international community in

the mediating efforts and pointing it

towards reaching a consensus between the

opposing groups competing over power in

Libya.

The most effective solution is the

development of a comprehensive national

reconciliation among the various Libyan

regions that constitute a safety valve for

social peace and provide a framework to

resolve problems and disputes arising from

the events that defined the country and that

by appealing only to justice and the rule of

law.

Libyan institutions and especially the

Central Bank of Libya and the National

Oil Corporation should be aware of the

seriousness of the current crisis and its

repercussions on the coherence and

sustainability of the state. Thus, they have

to step away from the political tensions

and stand at the same distance from

everyone as the last line of defense to

protect the prestige of the state internally

and externally, leading the country to the

shore of safety. Whatever disputes in

between Tobruk and Tripoli governments

over the expenditures from the general

budget, the ruling parties in general,

especially the ministry of Oil and Finance

must be fully neutral without getting

involved in the conflicts that hampers the

economic life in the country.

The decline of oil prices represents an

opportunity to review the general spending

policies in order to ensure the

rationalization of public spending and

reduce it to their minimum level that

correspond to the current available

resources. The sharp expected drop in

general revenues in 2015 requires urgent

and persistent measures. First of all:

The need to speed up the return of

security if the Libyan streets, the return of

political stability, performing the Libyan

dialogue, the existence of some sort of

consensus on a new social contract based

on openness and disclosure, and the pledge

to build real development models that

reflect the revolutionary demands.

Applying the law to everyone and

confronting all who violate the law in

order to achieve stability and security

which are the basics to attract investment

and improve the economic conditions.

The need to fully commit to apply the

national number in all the financial

transactions and in an urgent manner and

finding a mechanism to acquire the

sovereign revenues in addition to urgently

reviewing the subsidy policies and the

salaries of some sectors and delaying the

payment of the family allowance until the

improvement of the financial situations.

The need to implement an emergency

budget in the country along with austerity

measures that include reviewing the

subsidy policy and removing what is

known as the subsidized commodities.

There will not be an opportunity to support

the consumer in a direct manner because

there are no sufficient resources, which

means the need to gradually drop the

subsidy and reduce it in one or two goods

maximum and the work to implement a

new income policy that stat determines the

adequate real wages and salaries for

Libyans.





The fuel subsidy policy currently in force

is considered as irrational and caused the

waste of the most important resource in

Libya to make it beneficial to foreigners

unjustly. In fact, it is not logical that the

price of one liter of gasoline is cheaper

that one liter of water in oil country that

imports fuels from abroad. The value of

the fuel subsidies reached 8 billion dinars

in 2014.

The need to develop the sovereign non-

oil revenues (taxes and customs fees),

along with finding an effective mechanism

for collecting the sovereign revenues.

Reviewing the trade policy that resulted

in dumping and to immediately put an end

to the depletion of the state's stocks of the

foreign exchange, also reconsidering the

mechanisms of medical treatment abroad.

Postponing the decisions of deployment,

scholarship and training programs abroad

until the improvement of the general

financial situations, also reviewing the

diplomatic missions abroad and reducing

immediately.

Often, governments resort to print

banknotes when facing a decline in their

reserves to provide the necessary liquidity

to pay the salaries of the employees in the

government organs and run the business.

However this procedure may further

increase the inflation rate of the

consumers’ prices which will deteriorate

the purchasing capacity of the Libyan

currency.

Libya resorted to taking several austerity

measures due to the decline of the foreign

currency exchange; however the Libyan

bank should follow the military-economic

policy through going back to controlling

the exchange until stability is back to the

country. It is important to use the foreign

exchange for only the mandatory goods

and services, and implement an emergency

budget along with austerity measures that

include reviewing the subsidy policy and

dropping what is known as subsidized

commodities and there will be no option to

directly support the consumer due to the

lack of resources which means the need to

gradually drop the subsidy and reduce it to

one or two goods maximum, and to work

to implement new income policy that

determines the real and adequate wages

and salaries for Libyans.

To speed up the process of thinking

about issuing Islamic bonds to fund the

budget deficit to compensate the oil

revenues losses.

Opening the Libyan market of

communication technologies to

international competing companies in

order to get license fees and indirect taxes

that help financing the deficit and

improving the communication and

technology services that have recently

become deteriorated in most cities in

Libya.

The use of the Libyan oil as a weapon to

fight extremism through re-distributing the

oil revenues again in a way that guarantee

equality and justice between the

individuals, and satisfy all the

geographical parts and tribes. A big part of

these revenues has to be consecrated to

education in order to confront the





extremism and spread of the tolerant

culture of Islam.

These proposed and required economic

policies necessitate a key important

condition which is to stop the armed

conflicts across the country and putting an

end to the ongoing state of political

division in Libya in Libya.

The Libyan revolution has opened up the

way to build up a bright future. However,

the path to that bright future remains

fraught with danger that need to be

overcome in order to put an end to the

political division and a define the priorities

through a ten-year strategic vision that

take the economy from the excessive

reliance on oil and the concept of

distribution of rents between the regions

and tribes and maintaining a private sector

based on the government contracts to a

diversified economy based on the private

independent, pro-active and competitive

sector.





ABOUT THE LIBYAN ORGANIZATION OF POLICIES&STRATEGIES

The Libyan Organization Of Policies & Strategies “LOOPS” is an independent,

nonprofit and nongovernmental research organization established in Tripoli, Libya

in December 2014. Also a new branch of LOOPS was opened in January 2015 in

Istanbul, Turkey.

LOOPS provides high-quality analysis and recommendations on current and

emerging policy and strategy issues to promote the adoption of sound policies. It

also supports policy makers on dealing with current and impending policy and

strategy challenges. The organization is dedicated to improving the performance

of Libyan institutions and advancing the economic and social welfare of the

Libyan people. It also promotes the adoption of Governance, Quality Assurance,

Strategic Planning, and Excellence concepts to help improve the performance of

Libyan Institutions. Moreover, LOOPS enhances and disseminate knowledge on

public policy and strategy through the publication of statistics, studies and

periodical reports. It also promotes the advancement of understanding through

conferences, seminars, and workshops which facilitate open debate.

Tripoli Office:

Zawiat Aldahmani, B.O.Box.3144

Tel: 00218 21 340 75 86

Fax: 00218 21 340 75 87

Tripoli, Libya

Istanbul Office:

Yenibosna Merkez MAH.29

Bahçelievler-Post code 34197

Istanbul vizyon park Ofis Plaz.A3 BLK-K:3/D28

Tel: 0090 212 603 25 92

Fax: 0090 212 603 27 48

Istanbul, Turkey

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