A report issued by Libya’s Economic Track has highlighted a series of serious fiscal and economic imbalances, warning that without comprehensive reforms the country faces accelerating economic deterioration over the coming years.
Public Spending and Economic Performance
The report revealed that cumulative public spending in Libya has exceeded LYD 1.4 trillion, while real GDP declined from approximately $105 billion in 2012 to $34.5 billion in 2021, before partially recovering to $48.5 billion in 2024.
It estimated that cumulative losses to the Libyan economy since 2011 have surpassed $1 trillion.
The report also stated that declared domestic public debt reached LYD 303 billion by the end of 2025, equivalent to approximately 146% of GDP, exceeding the risk threshold identified by the International Monetary Fund.
Causes of Debt Accumulation
According to the report, public debt has been driven by:
- Spending outside legal frameworks.
- Institutional division and fragmentation.
- Reliance on temporary budget arrangements.
- Indirect financing mechanisms.
The report estimated that the optimal level of annual public spending to support growth without generating monetary imbalances is approximately LYD 105 billion.
However, actual spending in 2025 reached LYD 250.5 billion, more than double the recommended level, contributing to inflationary pressures and widening exchange-rate distortions.
Dependence on Oil Revenues
The report noted that more than 98% of Libya’s public revenues are derived from oil.
It also found that:
- 73% of public expenditure is allocated to salaries and subsidies.
- Only 11.3% is directed toward development spending.
Fuel subsidies alone exceeded $16.6 billion in 2024, while fuel smuggling continued and imported fuel costs reached $9.2 billion.
Structural Economic Weaknesses
The report stressed that Libya’s economy and exports remain overwhelmingly dependent on the oil sector, while other sectors contribute only marginally.
It identified significant:
- Developmental imbalances.
- Social disparities.
- Demographic challenges.
These factors have negatively affected economic stability and hindered development efforts.
The report highlighted that more than 90% of Libya’s population is concentrated along the coastal strip, particularly around the cities of Tripoli and Benghazi.
Employment and Human Capital Challenges
According to the report, Libya has failed to capitalize on its relatively young population because of:
- Poor alignment between education and labor-market needs.
- Excessive dependence on public-sector employment.
- Limited private-sector participation.
This has resulted in widening skills gaps and a shortage of productive employment opportunities.
Risks if No Reforms Are Implemented
The report warned that failure to adopt a comprehensive reform framework during 2026–2027 could lead to:
- Accelerated economic decline.
- Continued depletion of foreign exchange reserves.
- Growing difficulties financing imports.
- Risks to food and pharmaceutical security.
It further projected:
- Continued depreciation of the Libyan dinar.
- A gap between official and parallel exchange rates exceeding 200% by 2027.
- Expansion of the shadow economy.
The report warned that activities such as:
- Smuggling.
- Money laundering.
- Human trafficking.
- Drug trafficking.
could collectively exceed 30% of the size of the formal economy.
Public Debt and Infrastructure Risks
The report forecast:
- Increasing emigration of skilled professionals and technical workers.
- Public debt exceeding LYD 500 billion.
- Continued deterioration of infrastructure and public services.
It specifically highlighted risks to:
- Energy infrastructure.
- Water systems.
- Healthcare services.
- Education facilities.
The report warned that insufficient development spending could leave Libya increasingly dependent on imports while weakening domestic production.
Recommended Public-Sector Reforms
The report recommended:
- Suspending any legislation that increases public-sector salaries until institutional reforms are completed.
- Merging overlapping government entities.
- Reducing the number of budget-funded institutions.
- Establishing a unified salary law that limits the gap between minimum and maximum wages to between 8 and 10 times.
Additional recommendations included:
- Restricting new public-sector hiring except where essential.
- Reducing spending on hospitality, travel, conferences, and building rentals.
- Limiting expenditures on employee housing and facility maintenance.
Administrative and Diplomatic Reforms
The report also called for:
- A ban on purchasing luxury and armored vehicles.
- Suspension of state vehicle ownership transfers for at least two years.
- Reducing staffing levels in embassies and diplomatic missions.
- Closing or merging at least half of Libya’s foreign diplomatic missions.
It further recommended continued auditing of the national identification system and linking it directly to the payroll system to combat duplication and fraud.
Oil Sector Recommendations
For the oil sector, the report proposed:
- Clarifying institutional responsibilities between the Ministry of Oil and Gas, the National Oil Corporation, and the Energy Council.
- Studying the conversion of the National Oil Corporation into a holding company operating under efficiency and cost-accountability standards.
The report also recommended:
- Strengthening procurement oversight systems.
- Ending direct-award contracts.
- Closing accumulated budgets and reviewing financial statements of the National Oil Corporation and its subsidiaries.
- Ending payment-by-proxy arrangements because of transparency and oversight concerns.
Oil Marketing and Sales
The report further recommended:
- Ending oil-for-goods swap arrangements for any purpose.
- Selling crude oil and purchasing petroleum products through transparent tenders and procurement procedures.
It reaffirmed that the National Oil Corporation should remain the sole entity authorized to market Libyan oil and gas.
According to the report, all sales should be conducted through letters of credit, with proceeds deposited into the Libyan Foreign Bank and subsequently transferred to the Treasury account held at the Central Bank of Libya.
Overall Assessment
The report presents a stark assessment of Libya’s economic trajectory, arguing that excessive spending, institutional fragmentation, oil dependence, and weak development investment have created growing fiscal vulnerabilities. It concludes that broad structural reforms—particularly in public spending, subsidies, governance, and the oil sector—are necessary to prevent a deeper economic and financial crisis.
