The English-language website “POLICY CENTER” revealed on Tuesday that Libya is suffering from a severe unemployment crisis, especially among young people. According to the 2023 report of the Libyan Audit Bureau, more than two million people work in government institutions, excluding state-owned companies such as oil companies, banks, and utility companies, with a total workforce of 2.5 million.
The website stated that this massive public workforce, which consumed 51% of government spending in 2024, exists alongside a youth unemployment rate of 50%.
According to the website, this dilemma has persisted for years. Discussions about economic diversification to create jobs outside the public sector have been a major focus in Libyan discourse. However, while more officials are speaking about diversification, the economy itself has not diversified. There is a prevailing belief among Libyan officials that the state must lead this process. As a result, the government, through its institutions and with the help of international organizations, has developed numerous economic diversification strategies.
The website pointed out that because government officials draft these strategies, they always envision a central role for the state, dictating everything from identifying priority sectors to determining how they should be developed. The private sector is given a secondary role and is expected to participate only after the government lays the groundwork. The Libyan industrial zones project is just one example. Moreover, many Libyan bureaucrats deeply distrust the private sector, viewing it as a group of self-interested individuals eager to exploit the Libyan people. This perception reinforces the belief that the private sector must remain under strict government control.
The website emphasized that changing this mindset is urgent. Reports from the International Labour Organization indicate that micro, small, and medium enterprises account for more than 70% of total employment in many countries. Therefore, a thriving Libyan sector of these enterprises could be a significant source of employment. However, Libyan businesses face numerous challenges.
The website stated that currently, ambitious Libyan entrepreneurs are forced to rely on their personal savings or borrow from family and friends to secure the capital needed to start a business. This limited access to financing creates two barriers: first, it restricts market entry to individuals from wealthy families; second, it forces those with limited capital to pursue low-investment ventures. Some believe this explains the prevalence of retail stores among young people in Libya, as these businesses often require lower initial investments.
The website added that several factors contribute to the lack of financing for micro, small, and medium enterprises in Libya. Commercial banks typically require full collateral for loans, which cannot be residential property. Acceptable collateral includes land or commercial buildings, but only with official title deeds. Worse yet, the Libyan Land Registry Office has been closed since 2008. These conditions make it nearly impossible for unemployed youth to obtain loans to start their businesses.
In response, in January, the Central Bank of Libya instructed commercial banks to allocate at least 10% of their investment portfolios to finance micro, small, and medium enterprises, a figure that was recently increased to 20% through Islamic financing. However, these directives have so far resulted in no actual financing, as banks lack the internal expertise to design Sharia-compliant financial products tailored to the specific needs of micro, small, and medium enterprises.
Additionally, this requires a shift in mindset within bank risk departments, as Islamic finance emphasizes risk-sharing rather than relying entirely on collateral. The newly established Sharia boards within each Libyan bank are trained only to approve or reject transactions, not to develop Sharia-compliant financial products for micro, small, and medium enterprises.
The website explained that although the Central Bank of Libya owns most banks in the country, coordinating new lending operations has faced challenges.
An employee at Jumhouria Bank stated that the bank is awaiting guidance on approved financing and its implementation.
Meanwhile, bank officials indicated that they expect banks to develop and propose financial products for approval based on each bank’s investment priorities. There is considerable ambiguity regarding the division of responsibilities in this matter.
The website also stated that the central bank should engage in dialogue with commercial banks to address this issue. A two-way discussion allowing banks to ask clarifying questions is crucial. This approach would be far more effective than the current reliance on unilateral directives, which are common in the Libyan banking sector.
The website noted that even if the Central Bank of Libya were to introduce ready-to-use Islamic financing, banks would likely struggle to assess loan applications. Unlike traditional financing, where banks primarily evaluate the collateral provided, Islamic finance requires a comprehensive assessment of business plans, revenue forecasts, and the entrepreneurs’ business management skills.
However, Libyan banks currently lack this expertise. Understanding the existing incentive structures is also critical. The removal of interest rates in 2013 eliminated a key motivation for banks to issue loans without profit margins. Why would they risk lending to a small business when financing car purchases through Murabaha for individuals is highly profitable? For example, a bank buys a car from a dealer for 100,000 Libyan dinars and sells it to a customer for 125,000 Libyan dinars through an installment plan, deducting the monthly payments directly from the government employee’s salary. This results in a risk-free 25% profit for the bank. This financing program is highly popular because it is the only type of loan available to individuals in Libya. Many simply resell the cars immediately at a lower market value to obtain cash.
The latest report from the Central Bank of Libya on the banking sector indicates a 145% increase in bank profits between the third quarter of 2023 and the third quarter of 2024. Therefore, convincing banks to enter new markets and develop low-cost financing options for private businesses— which inherently involve risks and may not yield immediate profitability—will be a significant challenge.
The website continued by stating that Islamic financing for private businesses in Libya requires significant collaborative efforts from the Central Bank of Libya and commercial banks. It also requires careful consideration of the actual interest rates that some Islamic products may impose due to high administrative costs for banks. One immediate step to overcome these obstacles is the legal authorization of investment companies to act as intermediaries, channeling financing from banks to micro, small, and medium enterprises. Without prioritizing this issue at the highest levels and leveraging external expertise, meaningful progress is unlikely.
Finally, the Libyan letter of credit system, which allows access to foreign currency, disproportionately benefits retailers compared to value-added sectors. The Central Bank of Libya enables large companies importing goods into the Libyan market to obtain foreign currency at the official exchange rate. However, due to the unstable exchange rate system, many of these companies price their goods based on the black-market rate, which was about 30% higher as of February 2025. This means that the Central Bank of Libya is effectively subsidizing retail profits through exchange rate arbitrage, while non-retail sectors receive no support.
In reality, despite its intentions, the Central Bank of Libya’s policies are working against economic diversification, according to the website.
