Libya Economy on Verge of Collapse

Libya’s economy is on the verge of collapse, the World Bank has warned.

“The Libyan economy is near collapse as political stalemate and civil conflict prevent it from fully exploiting its sole natural resource: oil,” the World Bank warned in a report published Wednesday, Middle East Monitor reported.

Fighting between the two rival governments and militia tribal wars along with the insurgence of Daesh fighters have added pressure on the country’s economy leading it to near collapse.

Libyans have been faced with rising inflation and a sharp drop in wages.

“Substantial loss in real purchasing power of the population” with basic food items seeing a 31% price increase, the World Bank reported.

According to Karima Munir, an independent Libyan expert, the crisis is likely to continue as revenues struggle to keep up with public spending even as exports resume.

“The country is a massive welfare state and alternative sources of income need to be found,” she said. “The reliance on oil has had a severe impact on the economy and put pressure on [capital] reserves.”

Meanwhile, in the absence of police or army, crime is rife in the capital. Car theft, kidnapping for ransom and vendettas between armed groups are common.

 Slump in Oil Exports

Libya may have Africa’s largest oil reserves, estimated at 48 billion barrels, but production and exports have slumped dramatically through years of crisis.

Libya pumped around 1.6 million barrels of crude a day before Kadhafi’s overthrow, but the ensuing chaos hit production which fell as low as 290,000 in recent months, according to the National Oil Company.

Coupled with low global oil prices, this has left the economy “mired in recession since 2013”, with record high deficits, the World Bank said.

Libya has lost more than $100 billion in oil revenues since 2013, according to NOC chairman Mustafa Sanalla. Oil income has fallen to record lows, hitting just $2.25 billion in the first seven months of 2016, according to the World Bank.

That is far from the $50 billion per year oil revenues brought Libya under Kadhafi.

The sector, which used to bring in 95% of state revenues, has fallen victim to feuding between militias and rival governments that have torn the country apart.

Oil production fell to near zero during the 2011 uprising. In the following months it came close to pre-revolution levels, but in 2013 tumbled again as protests and violence erupted around key export terminals in eastern Libya’s so-called Oil Crescent.