tures driven by political motives. Budget LIBYA revenues almost tripled in 2017 (31.8 per- Recent developments cent of GDP) compared to 2016, but re- mained at half of potential. However, rev- Following four years of recession, the Lib- enues were not even enough to cover pub- yan economy grew strongly in 2017, driv- lic wages (36.4 percent of GDP), which Table 1 2017 en by a welcome recovery in oil produc- increased due to political hires and higher P o pulatio n, millio n tion. However, sustaining this dynamic to salaries. Inefficient subsidies (9.2 percent GDP , current US$ billio n reach economic potential depends on the of GDP) continued to absorb a significant GDP per capita, current US$ resolve of the political strife. Exceptional amount of budget resources while capital a Life expectancy at birth, years but fragile implicit arrangements between expenditures remained weak (4.8 percent Source: WDI, M acro Poverty Outlook, and official data. the parties in conflict allowed the oil sec- of GDP). Consequently, a high budget Notes: tor to more than double its production to deficit persisted at 26 percent of GDP in (a) M ost recent WDI value (2015) an average 0.820 million barrels per day 2017 (63.1 percent of GDP in 2016). The (bpd) in 2017, compared to only 0.380 mil- deficit is being financed mainly through lion in 2016. The non-hydrocarbon sectors cash advances from the Central Bank of remained sluggish inhibited by lack of Libya. The domestic debt has quickly in- liquidity and security. GDP is estimated to creased to reach LYD 59 billion end Sep- have increased by almost 27 percent in tember 2017, up from LYD 1 billion in 2017 allowing income per capita to sub- 2010. stantially improve to 63 percent of its 2010 Although improving, the balance of pay- level after losing more than half of its val- ments continues to suffer from politically- The relative economic improvement in ue. constrained production and export of oil Inflation accelerated, exacerbating further and high consumption-induced imports. 2017 remains fragile, as sustaining this the hardship of the population. Prices of Libya managed to substantially increase dynamic depends crucially on a political all commodities continued to increase, oil export in 2017 (0.7 million bpd), but resolution that in the current context mainly driven by acute shortages in the remained at half of potential. This relative seems hard to reach. The macroeconomic supply chains of basic commodities, spec- performance is not enough for a sustaina- ulation in the expanding black markets, ble current account considering the high framework is unstable. It is characterized and the strong devaluation of the LYD in dependence of Libya on imports to meet by record inflation and unsustainable the parallel markets. Consequently, infla- consumption and intermediate goods re- twin deficits, mostly driven by rising tion hit a record level of 28.4 percent in quirements. As a result, the current ac- budget expenditures. Dwindling savings 2017 following the 25.9 percent in 2016. count deficit remained high at an estimat- are keeping pressure on foreign reserves High inflation coupled with weak basic ed 9.4 percent of GDP. This deficit was service delivery are likely to have in- fully financed by net foreign financial in- and the LYD continued to lose its value creased poverty and exacerbated socio- flow, allowing foreign reserves to remain in the parallel markets. To stabilize the economic exclusion. unchanged in 2017 at around US$ 72.6 macroeconomic framework, Libya needs to Despite higher hydrocarbon revenues, billion. While the pegged official exchange launch budget reforms and diversify the public finances remained under stress, rate was kept stable, the Libyan Dinar lost given the high and rigid current expendi- around 85 percent of its value in the paral- economy for growth and job creation. FIGURE 1 Libya / High Wage bill and subsidies are still strain- FIGURE 2 Libya / Although improving, the balance of pay- ing public finances ments remains unsustainable 80 100 60 80 40 60 20 40 0 20 -20 0 -40 -60 -20 -80 -40 -100 -60 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 -80 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Budget Balance Total Revenue Wages and salaries Subsidies and transfers Current account balance Exports Imports Sources: Government of Libya and World Bank staff estimates. Sources: Government of Libya and World Bank staff estimates. MPO 1 Apr 18 lel market due to the weak macroeconom- billion during 2018-2020, representing the nomic framework and promote private ic fundamentals and an illiquid banking equivalent of 27.5 months of imports. sector-led job generation. Other medium- system. term priorities should focus on promoting the development and diversification of the Risks and challenges private sector for job creation through Outlook policies to reorient the economy away from hydrocarbon dependence, reforming The baseline macroeconomic scenario the financial sector, and improving the At the current pace of spending in a con- presented above is very fragile because it business environment. text of conflict and insecurity, Libya will requires upholding the implicit agreement Libya’s economic fragility has important either exhaust foreign exchange reserves between the parties in conflict to ensure consequences for the people’s well-being. or be forced into ad hoc adjustments nec- minimum security around oil infrastruc- Although there is no systematic study on essary to stave off crisis, but far from suffi- ture. Moreover, an improved macroeco- poverty and very little evidence on the cient to reestablish growth foundations. nomic outlook is unlikely to be sustained current well-being of Libyan households, The economic and social outlook assumes and is not sufficient to bring about signifi- it is not unrealistic to think that for most that political strife is resolved and a uni- cant change, unless immediate and target- of Libyans living conditions are dire. Since fied government can ensure macro- ed actions are taken to address the hu- hydrocarbons account for a large share of stability and launch a comprehensive pro- manitarian crisis. The country needs hu- GDP and government revenues (40 and 86 gram to rebuild the economic and social manitarian aid and specific programs to percent respectively), the sharp decline in infrastructures. In this context, it is ex- address the destruction and lack of basic oil exports started in 2011 has severely pected that oil production will progres- services that a large part of the population impacted public services. The erratic pow- sively increase to reach its potential faces. er supply and the recurrent food shortag- (around 1.5 million bpd) by 2020, which is Immediate challenges are to restore peace es also contribute to worsening conditions the time necessary to restore the heavily that would lead to macroeconomic stabil- for people. In the current situation, large damaged oil infrastructure. Growth is ity and to improve basic public services. share of the population is either vulnera- projected to rebound at around 15 percent This calls for immediate actions to bring ble to poverty or has fallen into poverty. in 2018 and an average 7.6 percent in 2019 current expenditures under control, espe- -20. Both the fiscal and current account cially the wage bill and subsidies, and balances will significantly improve, with improve governance of the financial sec- the budget and the current account run- tor, which will also contribute to price ning surpluses expected from 2020 on- stability. Over the medium term, the wards. Foreign reserves will start building country needs broader and deeper struc- up by 2020. They will average US$72.5 tural reforms to stabilize the macroeco- TABLE 2 Libya / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2015 2016 2017 e 2018 f 2019 f 2020 f Real GDP growth, at constant market prices -8.9 -2.8 26.7 14.9 9.4 7.5 Private Consumption -22.5 -12.0 16.3 7.5 4.3 4.2 Government Consumption -19.5 -34.1 32.5 2.3 -0.9 -0.9 Gross Fixed Capital Investment -42.2 -19.4 86.4 42.0 8.3 11.6 Exports, Goods and Services 9.0 -27.0 143.9 22.2 17.1 12.0 Imports, Goods and Services -37.1 -42.4 114.8 25.0 7.1 9.1 Real GDP growth, at constant factor prices .. .. .. .. .. .. Hydrocarbon -15.8 -5.4 116.7 30.2 17.5 12.4 Non-hydrocarbon -6.5 -2.0 0.0 5.0 3.0 3.0 .. .. .. .. .. .. Inflation (Consumer Price Index) 9.8 25.9 28.4 10.0 5.0 5.0 Current Account Balance (% of GDP) -31.4 -14.6 -9.4 -7.2 -3.0 0.6 Fiscal Balance (% of GDP) -76.9 -63.1 -26.0 -13.2 -7.1 0.2 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Notes: e = estimate, f = forecast. MPO 2 Apr 18