Written by economics professor “Ali Al-Sharif”
When we talk about the sustainability of public finances, we are essentially referring to its two main pillars: public expenditure and public revenues.
On the expenditure side, we are witnessing a significant expansion that has exceeded the absorptive capacity of the Libyan economy. This has contributed to economic disarray and negatively affected several macroeconomic variables, most notably the exchange rate, inflation levels, and overall financial stability.
On the other hand, equally important risks emerge on the revenue side, where oil revenues—which represent the main source of public income—are suffering from significant and increasingly complex leakages. This requires urgent action to address these weaknesses and strengthen governance and oversight of state resources.
There is also a need to focus on diversifying non-oil revenues, particularly customs revenues, which remain very modest compared to the scale of documentary credits and imports.
In addition, the expansion of the shadow economy, which contributes little to no tax revenue, represents a major challenge that requires effective policies to integrate informal economic activities into the formal economy.
Addressing these imbalances has become an urgent necessity to ensure the sustainability of public finances. However, achieving this remains closely linked to the existence of a unified state and institutions capable of enforcing good governance on both the revenue and expenditure sides—something that is difficult to achieve in light of institutional fragmentation and the absence of effective oversight and accountability mechanisms.
