Can reviving Libya's economy clear the political impasse?

Can reviving Libya's economy clear the political impasse?
7 min read
04 Nov, 2016
Comment: A meeting in London this week to help end political and economic stagnation in Libya was hailed a success, but the road ahead has many obstacles, writes Guma El-Gamaty
With the chaotic scene that Libya is today, it is not possible to separate the political, security, economic and social dimensions where each one impacts hugely on the other.

The political divisions, impasse and continuing armed conflict between competing factions have resulted in a dire security environment and brought about great socio-economic suffering for ordinary Libyan citizens.

In its recent detailed report on the Libyan economy and its outlook, the World Bank (WB) has warned that "The Libyan economy is near collapse as political stalemate and civil conflict prevent it from fully exploiting its sole natural resource: oil".

Libya depends exclusively on oil exports for revenue and oil production has been reduced to around a fifth of what it was two years ago; down from 1.5 million bpd to under 300,000 bpd. This sharp decline in oil exports has led to revenues plummeting and the Libyan dinar losing value sharply against foreign currencies - causing spiralling inflation.

Rising prices, coupled with severe shortage of liquidity in the banks and long periods of electricity blackouts, represent some of the suffering that ordinary Libyans are facing today.

It is due to this very gloomy political and economic situation, that a high level meeting on Libya took place in London early this week which attracted a significant level of coverage and publicity.

The meeting brought together Libyan political and economic leaders as well as the foreign ministers of the USA, UK and Italy, along with representatives from France, Saudi Arabia and the UAE. Representatives from both the World Bank and International Monetary Fund (IMF) were also invited.

The Libyan side included the head of the government of national accord (GNA) Fayes Sarraj, chairman of Libyan Central Bank (CBL) Sedig Al-kabir and head of the National Oil Corporation (NOC) Mustafa Sanallah, along with the Libyan Auditor general Khaled Shukshuk.

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In effect, this Libyan summit brought together the government with the three institutions most relevant to the Libyan economy and monetary policy.

The main aims of this meeting were to come up with strategies and mechanisms that can avert economic collapse in Libya and help break the political impasse - in which Libya finds itself - 10 months after the signing of the Libyan Political Agreement (LPA) in Morocco in December 2015.

One of the major causes of political impasse in Libya has been the consistent refusal of the head of the interim Libyan parliament, "House Of Representatives" (HOR), based in Tobruk to chair a free session, in order to ratify the constitutional amendments stipulated by the LPA and approve the new government cabinet.

Head of HOR Ageela Saleh has constantly insisted that he will not support the amendments and cabinet approval, unless the position of Haftar as general commander of the Libyan National Army (LNA) is secured and the position of commander in chief of the armed forces remains with the HOR and not the GNA, as the LPA stated.

This has meant that the GNA has been working without an official vote of confidence from the HOR, or an allocation of a full budget in order to begin to address the lack of security and harsh economic conditions that Libyans are facing. 

Many barriers and obstacles remain for the GNA to deal with, including the influential militias in Tripoli

In a recent meeting with members of the Libyan political dialogue group, in Tunisia on 6th September 2016, the chairman of the (CBL) Sedig al-kabir stated clearly that the central bank can only help the new GNA, once the political division in the country has ended, and full export of crude oil has resumed, in order to generate vitally needed fresh revenue.

Oil exports have recently resumed again, after the NOC took control of four key oil ports, and it stands today at around 620,000 bpd. The NOC aims to reach 900,000 bpd by the end of 2016 and increase thisfurther in 2017 once cash - vital for repair of oil production and transport facilities - has been made available.

This reluctance by the chairman of the CBL to release funds has recently led to antagonisms and public exchanges with the head of the GNA Fayes Sarraj.

Very clear frustrations were expressed by head of GNA Sarraj, when asked, in a recent interview, regarding the reasons why his government has not delivered much against the high expectations of the Libyan people.

Sarraj said, "This is the position that the PC found itself in and was put into. We had no money and after great local and international efforts we got some emergency finance but even these we have been held to account for them using a sensitive scale as to how or where we spend them".

Another challenge will be the deep rooted corruption culture that eats up most of any allocated budgets

The small emergency budget offered by the CBL, which Sarraj eluded to, was around 1.5 billion Libyan dinars. However, the Auditor General Khaled Shukshuk, in an official statement, effectively blocked the use of the money; he stated that it lacked the legal foundations, in terms of an approval by parliament.

Yet this is exactly the problem, because Ageela Saleh has made it very clear that he has no intention of allowing the HOR to approve any budget for a GNA, which he essentially stands against.

The two day meeting in London was primarily to address this urgent issue of how to make funds available for the GNA, without requiring HOR approval for now, in order for it to meet the urgent needs of the Libyan population.

The GNA can only succeed in solidifying a fragile political agreement and achieve peace and reconciliation if it can rebuild vital security institutions, like the police and army, and meet socio-economic needs. Other challenges include eliminating power shortages and improving health and education services. For this, the GNA needs to have an adequate budget at its disposal and work smoothly with the vital financial and regulatory institution, like the CBL and Audit Bureau.

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The London meeting has been hailed a success, where an agreement has reportedly been reached between the GNA and the CBL.

Another meeting, to hammer out exact financial details, has been scheduled for 17th November in Rome according to the Italian foreign minister, Gentiloni, who described the London meeting as "a first step forward in stabilising the economy and realising priority programmes for the country, including the provision of essential services and security".

However, many barriers and obstacles remain for the GNA to deal with, including the influential militias in Tripoli who wield lots of power and will demand their share of any budgetary expenditure.

There is also the challenge of ending the fighting in Sirte and Benghazi and dealing with the urgent humanitarian aspects including the return of displaced civilians to their homes.

Another challenge will be the deep rooted corruption culture that eats up most of any allocated budgets, and the very weak institutional capacity in Libya to implement policies and deliver services effectively.

It is difficult to predict whether reviving the economy in Libya will actually clear the political impasse and help bring Libyans closer together, in order to realise that they can only enjoy the fruits of their natural wealth when they live in peace and forge a national accord.

Historically, Libya has always been very vulnerable to regional and international influences, and the sceptical view posits that once the threats of terrorism and immigration from Libya have rescinded, the international community and major western powers will disengage from Libya and turn their back on the vital transitional challenges.

Also to consider, is the influence and interference of regional players - of which the most influential is Egypt - which has taken a one sided approach by heavily supporting General Haftar and his camp; thus prolonging the conflict, divisions and suffering of Libyans further. 

Guma El-Gamaty is a Libyan academic and politician who heads the Taghyeer Party in Libya and a member of the UN-backed Libyan political dialogue process.

Follow him on Twitter: @Guma_el_gamaty

Opinions expressed in this article remain those of the author and do not necessarily represent those of The