Country Summary

Economic performance and outlook: After three years of economic contraction, GDP grew an estimated 55.1% in 2017, due to the significant increase in oil production. With the dire security, political, and humanitarian situation accompanied by the sharp decline in oil prices, real GDP in Libya contracted more than 50% in 2014 and continued to shrink through 2015 and 2016, although at a slower rate. With the Organization of the Petroleum Exporting Countries agreement to cut oil production to 32.5 million barrels a day starting January 2017, oil prices rose slightly and fluctuated between $52 and $60 from August to November 2017. Exempt from this agreement, Libya increased oil production substantially toward the end of 2016 and throughout 2017, boosting forecasted growth in real GDP for 2017 and 2018. The economic outlook remains highly uncertain and dependent on fluctuating oil prices and progress in achieving stability. 

Macroeconomic evolution: Higher oil production, from a daily average of approximately 400,000 barrels a day in 2016 to 900,000 in September 2017, improved economic performance. The current account deficit is expected to turn into a surplus of 1.8% of GDP in 2017, with an estimated increase in exports of 62.5% and an estimated increase of 4% in imports, which have been falling with the decline in foreign reserves. After peaking in 2015 at 126.6% of GDP, the budget deficit dropped to an estimated 43% of GDP in 2017. The de facto removal of the subsidy on food items fueled inflation, which reached 32.8% in 2017. The Libyan dollar depreciated against the U.S. dollar in the official exchange rate market toward the end of 2016 and the beginning of 2017 but stabilized around $1 for 1.37 LYD in July 2017, the same rate as before its depreciation wave in September 2016. 

Tailwinds: The forecasted boost in oil revenues provides the Libyan government with means and resources to face longer-term challenges. The government will be able to launch its economic recovery plan by adopting an expansionary fiscal policy to improve public service delivery and rebuild damaged infrastructure as a first step. As a second step, the government will initiate policy reforms to diversify revenue sources and economic activity. One reform will encourage private investment in areas most likely to create jobs, such as infrastructure, agriculture, hospitality, and trade services, to address the rising unemployment rate that reached 20% in 2016. 

Headwinds: Higher oil production is increasing tension among political factions. The UN-backed Government of National Accord struggles to gain the support of the House of Representatives in Tobruk and to limit the power of armed militias and extremists. The ongoing conflict has caused further deterioration in public services. A World Health Organization assessment identified severe shortages in medical supplies and doctors; approximately 1.3 million people have no access to basic health care. The humanitarian crisis is exacerbated by increasing causalities at migrant smuggling hubs and an estimated 400,000 internally displaced persons. Finally, spending on subsidies and wages exerts pressure on the budget; in 2017, spending on subsidies accounted for 8.9% of GDP, and spending on wages accounted for 33.3% of GDP.

Source: African Economic Outlook 2018

Fixed Income