Libya Economic Outlook
- Libya’s civil war has left it with a severely depressed economy, in particular by reducing the production and export of oil, the primary source of revenue.
- The interim government must guarantee political stability, encourage economic reforms, and address national and regional inequalities.
- Existing challenges to youth employment are compounded in the short term by war-related obstacles.
The fall of the former government created, for the first time, an opportunity for the country to pursue the economic and social reforms that the previous regime’s vested interests had prevented. Yet the revolution also brought numerous challenges. The country temporarily stopped producing oil, the chief source of its revenue, while the freezing of its international assets created major obstacles with respect to liquidity. The conflict resulted in the formal economy coming to a halt. Nevertheless, the economy is expected to pick up as the political situation stabilises. The speedy return of foreign oil companies, along with strong international support, bodes well for the country’s postconflict recovery. The interim government, led by the National Transitional Council, is taking measures to build on the oil industry’s strengths while repairing the former government’s mismanagement. It is unlikely that Libya’s spending will decrease, given the need to pay for infrastructure projects as well as the increase in the wage bill.
However, the budget balance that was in deficit in 2011 is expected to be positive again in 2012. In spite of Libya’s many challenges, such as economic management, social inclusion policies and governance, the country will be able to make important strides in its reconstruction efforts if the interim government is able to maintain stability.
Youth unemployment, one of the main grievances that led to the 2011 uprising, has been aggravated by the economic difficulties created by the civil war. Libya has traditionally relied on the public sector to create jobs, a measure that has proved unsustainable, but the country’s inefficient private sector has been unable to compensate for the lack of jobs. Business environment inefficiencies have slowed down efforts to reform and encourage the private sector. At the same time, Libya’s education system inadequately prepares students to meet labour market demands.
