Press "Enter" to skip to content

Economic collapse of Libya looms as forex reserves drain

(Gulf Times)Global institutions, constrained by competing national priorities, have now largely become complacent to the four-year-old Libyan imbroglio. Apart from bringing about one of the worst humanitarian and refugee crises, Libya’s enduring fighting since the eight-month bloody civil war that broke out in February 2011 has driven the country to the brink of an inevitable financial collapse.

Libya did eat up more than a quarter of its foreign currency reserves in 2014 amid a plunge oil revenues, its national lifeline. The central bank’s forex reserves were $76.6bn at the end of 2014 compared with $105.9bn a year earlier, the Tripoli-based Libyan Audit Bureau said. The $29.3bn slump to the lowest level for many years could mean the Opec producer may be edging closer to a collapse of the national economy in “less than two years”, the bureau warned.

Libya, for sure, is disintegrating and becoming a failed state. The country currently has two hostile governments and two parliaments, each allied to former anti-Gaddafi rebels fighting among themselves. To make things worse, Islamist militants are trying to exploit the power vacuum created by the ongoing hostilities.

More than a dozen oilfields have been shut this year, cutting output in the North African country to less than 500,000 bpd, while oil revenues plunged 30% to $14.6bn in 2014: both one-third of the levels in 2010.

The $73.6bn Libyan economy contracted by 5.1% in 2013 compared with a growth of 10.6% in 2010, according to “CIA World Factbook” data updated in March 2014. Libya had a budget deficit of around $15bn at the end of November, the central bank said, before oil output fell by half. This year the gap is set to further widen due to an expected oil revenue shortfall.

With global oil prices consistently staying lower and no sign of an end to hostilities, Libya is left with few economic options to deal with the cash crunch.

More than four years after the uprising that ended Muammar Gaddafi’s 42-year dictatorship, some 1,700 clans and militias are now battling for power in Libya. An estimated 400,000 Libyans are internally displaced by the fighting. The country has become the transit point for smuggling illegal migrants to Europe; thousands of whom have died trying to cross the Mediterranean.

Given the extent of social divide and political fragmentation currently afflicting Libya, the call for a unified, democratically elected government may sound utterly irrelevant. But for it to survive, Libya is in dire need of an efficient leadership with a compelling new national vision to unify competing factions, rein in trigger-happy militias and bridge regional divisions for a stable nation that thrives on its oil riches.