While rival Libyan politicians were last month attempting to come to an agreement on how to “split the cake” in the Moroccan town of Skhirate, the Libyan Transparency Working Group met in Istanbul to establish exactly what's left of that cake and how to preserve it.
But first, a bit of context. The situation in Libya today demonstrates clear symptoms of the so-called “natural resource curse.” Rents created by the country's oil and gas resources have led to pitched fighting for the spoils. Smothered by by rent-seeking rivalries, the 2011 Libyan revolution—with its slogans of transparency, accountability and the rule of law—seems to have died in its infancy. What's left today is a country that is poorly governed and un-versed in sustainable economics—one that merely lives off its natural resource rents…
…As long as they last, anyway. With low oil production due to conflict and low global oil prices, Libya is on the road of fiscal collapse. “Every decline in oil prices by 10 per cent will increase the budget deficit by 2 per cent,” according to Mohammed El Qorchi, the International Monetary Fund mission chief for Libya. Libyan officials have suggested that the country may go broke in less than 18 months.
And so the outlook for Libya is gloomy, four years on from the revolution, mired in conflict, without signs of economic recovery. The economic facet of this crisis was the theme of the Natural Resource Governance Institute's roundtable discussion with members of the Libyan Transparency Working Group in Istanbul on March 24 and 25. The roundtable brought together Libyan officials from the ministries of finance, economy, planning and labor, the Central Bank of Libya, the Economic Development Board, the World Bank, and others.
The discussions, held under Chatham House rule, commenced with a former member of Libya's National Transitional Council highlighting key policy decisions that were taken in 2011 by the council, the international community, and the UN-created support mission. As governors of a country with significant natural resource wealth, the Libyan transitional authorities had something most post-conflict leaderships don't: abundant liquid assets. At the outset, the international community had little leverage over the Libyan transitional authorities. Normally the international community would be in the driver's seat, providing the transitional government with much-needed financial resources in exchange for commitment to predetermined policy checklists and reforms. Not so in oil-rich Libya.
On 16 December 2011 the UN lifted sanctions on Libya's Central Bank Reserves, effectively granting the new transitional government unfettered access to over $100 billion. A wild, uninhibited spending spree followed over the next three years. The country's recurrent expenditures spiraled out of control, nearly doubling the number of Libyans on the public wage bill. Energy and food have been heavily subsidized since 2010, and the staggering expenditures have now taken their toll on the public purse.
The discussions in Istanbul highlighted Libya's infrastructure gap and the declining funds available for the country's development. The Libyan Public Policy Forum reports that capital expenditure decreased from 52 percent of the annual budget in 2010 to a mere 11 percent in 2013, and then further to 6 percent in 2014. Subsidy spending rose from 6 percent in 2010 to 28 percent in 2014; wages claimed 24 percent in 2010 and then a staggering 42 percent in 2014. Libya's 2014 revenues were 20.9 billion dinars against expenditures of 43.9 billion dinars, resulting in a deficit of 22.3 billion dinars—approximately $17 billion.
The Transparency Working Group had in the past—as early as 2013—raised red flags; its members clearly saw that such stratospheric levels of spending would inevitably result in Libya's financial demise. But how was this allowed to happen? What unsound policy decisions were made on behalf of the transitional authorities?
In Istanbul, a former official from the Libyan prime minister's office explained that the government was faced with “post-conflict realities.” He said that factors leading to the spending spree were high expectations of the victors, notably the revolutionary fighters who were granted direct cash payments outside of ministerial budgets; haphazard hiring in local councils; and the establishment of new government entities to absorb unemployed youth demanding jobs. Various cabinet decisions were made by the government, raising sectoral salaries by anywhere between 20 to 67 percent. These decisions had a disastrous effect on the public purse. According to a senior official from the ministry of planning, “all of the reforms Libya's public administration had undertaken since 2006 had vanished overnight due to poorly conceived policies”—a view also shared by other members of the Transparency Working Group.
Over the course of two days, members of the Transparency Working Group analyzed all the causal factors leading to Libya's present-day economic situation, and reached consensus on key policy areas that they as a group would advocate for with their constituencies. These include further research in private sector development and economic diversification (i.e., moving away from natural resource dependency), and a nationwide public awareness campaign about Libya's economic situation and how every citizen needs to do his or her part in the inevitable austerity efforts. NRGI is committed to supporting the group's initiatives through its UK DfID-funded program, working with civil society organizations and media, and providing technical assistance to the Libyan authorities on the areas identified by the Transparency Working Group.
Yusser AL-Gayed is NRGI's Middle East and North Africa regional deputy director.
The Transparency Working Group is a policy forum founded by NRGI and the LPPF.