Oil exports are approaching pre-conflict levels and international sanctions have been lifted, but four months after fighting ended, experts warn that Libya’s financial situation remains fragile.
The new leadership has inherited an economy in disarray, plagued by the corruption and mood swings of deposed ruler Moamer Kadhafi and his clan, who controlled Libya’s key oil industry — and revenues — for more than 40 years.
State-run National Oil Corp said last week that oil production, which collapsed after the uprising against Kadhafi’s regime erupted a year ago, had reached 1.3 million barrels per day, in “record time.”
The NOC chairman said in November that Tripoli expected to reach pre-crisis levels of around 1.7 million bpd by the end of 2012.
The north African nation’s gross domestic product fell by about 60 percent last year, but International Monetary Fund (IMF) projections say it could rebound with a near-70 percent expansion this year and 20 percent in 2013.
The lifting in December of most sanctions imposed by the UN Security Council and United States on Kadhafi’s regime was a boost for the transitional government, allowing it to access at least some of the billions of dollars of unused funds.
The release of some of the estimated $150 billion in former regime assets has given the Central Bank of Libya (CBL) the funds needed to intervene in exchange markets, support the dinar and allow the government to keep paying civil servants.
However, “despite the removal of UN sanctions on the CBL, the public sector’s financial situation remains precarious,” the IMF said in a mission report last month.
The government continues to borrow from the central bank to fund itself, but the CBL and commercial banks themselves are short of actual bank notes to match the demand.
The shortage in local currency continues to affect the lives of Libyans, creating a “crisis of confidence” with the banks.
National Transitional Council spokesman Mohammed al-Harizi recently said the amount of dinars in banks had risen from 500 million at the fall of the regime in October to 1.5 billion now.
With stabilisation, inflation should be pulled down to below two percent this year from 14.1 percent last year.
The IMF says key short-term challenges include establishing fiscal discipline and reviving the banking system, while at the same time maintaining macroeconomic stability.
The unemployment rate, estimated at 26 percent before the conflict, has “probably” increased, it added.
In the medium and long term, Libya is under pressure to diversify its hydrocarbons-dominated economy, but also fight corruption and bureaucracy.
“The situation of the Libyan economy now is the same as it used to be under Kadhafi, and it could get worse,” said Husni Bey, one of the most prominent businessmen in the Libyan private sector.
“The same corrupt lobby is still there and in the absence of justice and control, it is difficult to put an end to old practices,” he added.
The leadership also needs to restore security and disarm Libya’s various militias to encourage companies and foreign labour to return to the country, where major projects are still at a standstill.
The government insists there will be “no new contracts before the election” of a constituent assembly in June.
Britain and France, which took a leading role in anti-Kadhafi military operations before he was killed on October 20, are expected to win big contracts in Libya.
“But nothing is a foregone conclusion in this country,” said a Western diplomat in Tripoli.