LIBYA ECONOMIC MONITOR Stabilizing Growth and Boosting Productivity Fall 2024 Libya Economic Monitor Stabilizing Growth and Boosting Productivity Fall 2024 Middle East and North Africa Region © 2024 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy, completeness, or currency of the data included in this work and does not assume responsibility for any errors, omissions, or discrepancies in the information, or liability with respect to the use of or failure to use the information, methods, processes, or conclusions set forth. 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CONTENTS Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi 1.  Recent Economic Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Conflict and Institutional Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Economic Growth and Hydrocarbon Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Public Finances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 External Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Inflation and Monetary Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 2.  Outlook and Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.  Special Focus: Stabilizing Growth and Boosting Productivity . . . . . . . . . . . . . . . . . . . . . . . . .13 Stages of Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Predominance of Oil and Public Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Limited Diversification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Low Productivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Constraints to Productivity Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22 Annex 1. Selection of Libya’s Structural and Aspirational Peers . . . . . . . . . . . . . . . . . . . . . . . . .25 iii List of Figures Figure 1 Spatial Disparities Among Regions (GDP Per Capita) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Figure 2 Unemployment Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Figure 3 Worldwide Governance Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Figure 4 Number of Violent Events in Libya (2011–Oct 2024) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Figure 5 Number of Violent Events in Libya (Monthly 2024) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Figure 6 Monthly Average Oil Production and Price Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Figure 7 GDP Growth Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Figure 8 Government Operations (GNU) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Figure 9 Monthly Trade Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Figure 10 Balance of Payments & International Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Figure 11 CPI Inflation Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Figure 12 Contribution to CPI Inflation Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Figure 13 Liquidity Pressure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Figure 14 Money Supply and Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Figure 15 Monthly Official and Parallel LYD/USD Exchange Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Figure 16 GDP Growth Forecast and Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Figure 17 Inflation Rates and Global Commodity Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Figure 18 Fiscal Balance (2024–2026) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Figure 19 External Balance (2024–2026) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Figure 20 Decades of International Sanctions, Political Instability and Oil Prices Volatility . . . . . . . . . . . . . . .14 Figure 21 Real GDP in Libya and other Country Groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Figure 22 Real GDP Per Capita in Libya and other Country Groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Figure 23 GDP and Non-Oil GDP Volatility in Libya and Structural and Aspirational Peers (2000–2023) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Figure 24 Libya’s Development Indicator Scores Compared to the Upper-Middle-Income Country average (2011 to 2022) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Figure 25 Libya’s Development Indicator Scores Compared to the FCV Country Average (2011 to 2022) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Figure 26 Libyan Economy Heavily Dependent on Oil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Figure 27 Proportion of Value Added among Sectors of Libya and its Structural Peers . . . . . . . . . . . . . . . . .18 Figure 28 Proportion of Value Added among Sectors of Libya and its Aspirational Peers . . . . . . . . . . . . . . . 18 Figure 29 Employment by Public and Private Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 Figure 30 Employment by Economic Activity and Sector in 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Figure 31 GDP Per Capita and Fitness Trajectory, 2011–2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Figure 32 Bertelsmann Transformation Index (BTI), 2024 (Libya vs. Structural Peers) . . . . . . . . . . . . . . . . . . 19 Figure 33 Bertelsmann Transformation Index (BTI), 2024 (Libya vs. Aspirational Peers) . . . . . . . . . . . . . . . . 19 Figure 34 Labor Productivity by Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Figure 35 Share of Employment and Level of Productivity in Different Sectors . . . . . . . . . . . . . . . . . . . . . . . . 20 Figure 36 Labor Productivity of Libya and its Structural Peers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Figure 37 Labor Productivity of Libya and its Aspirational Peers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Figure 38 Libya’s Growth Attributable to TFP, Physical and Human Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Figure 39 Growth Decomposition of Libya’s Structural Peers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Figure 40 Within-Sector Productivity Growth Versus Structural Change in Libya . . . . . . . . . . . . . . . . . . . . . . . 22 Figure 41 Share of Employment by Sector in Libya . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Figure 42 Gross Capital Formation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 iv LIBYA ECONOMIC MONITOR – STABILIZING GROWTH AND BOOSTING PRODUCTIVITY Figure 43 Gross Capital Formation, Libya and its Peers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Figure A.1 Comparison of Structural Peers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Figure A.2 Comparison of Aspirational Peers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 List of Tables Table 1 Key Macroeconomic Indicators, 2021–26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 List of Boxes Box 1 Subsidies System in Libya . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Box 2 Global, Regional, and Oil Market Prospects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 Box 3 Estimating the Economic Cost of Conflict on the Libyan Economy . . . . . . . . . . . . . . . . . . . . . . . . . 15 Contents v ABBREVIATIONS BTI Bertelsmann Transformation Index ILO International Labor Organization CBL Central Bank of Libya IMF International Monetary Fund CPI Consumer Price Index LEM Libya Economic Monitor EFI Economic Fitness Index LYD Libyan Dinar FCV Fragile, Conflict, and Violence Mbpd Million barrels per day FDI Foreign Direct Investment MENA Middle East and North Africa GDP Gross Domestic Product NOC National Oil Corporation GNI Gross National Income SCM Synthetic Control Method GNS Government of National Stability TFP Total Factor Productivity GNU Government of National Unity USD United States Dollar HoR House of Representatives WBG World Bank Group vii PREFACE T he Libya Economic Monitor (LEM) is the invaluable comments on preliminary drafts of the product of the Middle East and North Africa report from Abdoulaye Sy (Lead Economist/ Program unit in the Economic Policies Global Practice Leader). at the World Bank Group. It provides an update on key The LEM was completed under the guidance economic developments and policies and presents of Eric Le Borgne (Practice Manager) and Henriette Libya’s outlook. It is intended for a wide audience, von Kaltenborn-Stachau (Resident Representative including policymakers, business leaders, financial for Libya). Ahmadou Moustapha Ndiaye (Country market participants, and the community of analysts Director) authorized the publication. and professionals engaged in Libya. The data cut-off The findings, interpretations, and conclusions for this report is Oct 31, 2024. expressed in this report are those of the World Bank The report was led by Khaled Alhmoud (Senior staff and do not necessarily reflect the views of the Economist) and co-authored by Luan Zhao (Senior Executive Board of The World Bank or the govern- Economist), Zied Ouelhazi, Natsuko Obayashi, and ments they represent. Habib Zitouna (Economists). The authors are grateful For questions and comments on the content of to Weijian Li and Yahui Zhao (Research Analysts) this publication, please contact Khaled Alhmoud (kal- for their inputs and contributions, and to Ekaterina hmoud@worldbank.org). For media communication, Georgieva Stefanova (Senior Program Assistant) please contact Estelle Allano (eallano@worldbank.org). for administrative support. The authors received Translation Services by Hammouda Salhi. ix EXECUTIVE SUMMARY T he recent crisis at the Central Bank of faltering global oil demand, mostly from China, despite Libya (CBL) over its leadership, which increasing regional geopolitical risks. began in August and ended in late Libya’s economic outlook relies heavily on September of this year, severely impacted the the oil and gas sector, which constitutes a sig- country’s oil production and overall economy. nificant portion of its GDP, government revenue, The crisis was triggered by a power struggle between and exports. With oil production expected to average rival governments and factions vying for control 1.1 mbpd in 2024, GDP is anticipated to shrink by over the CBL’s management of hydrocarbon wealth 2.7 percent this year. As oil output recovers in 2025 and fiscal policies. The situation was eventually and 2026, reaching 1.2 and 1.3 mbpd, respectively; resolved with the appointment of a new Governor, GDP growth is expected to rebound to 9.6 percent Deputy Governor, and Board of Directors, but the and 8.4 percent in 2026. Meanwhile, non-oil GDP CBL remains a central point of political tension. The growth is estimated to grow by 1.8 percent in 2024 crisis underscored the fragility of Libya’s political supported by private and public consumption, and landscape and its profound impact on economic average around 9 percent during 2025–2026 to stability, highlighting the urgent need for a more reflect strong recovery in oil exports. Despite the fall unified and stable governance framework to manage in oil revenues in 2024, both the fiscal and external the country’s critical financial and natural resources balances surpluses are expected to widen to 1.7 and effectively. 4.1 percent of GDP, respectively, due to contraction- Precipitated by the CBL crisis, oil produc- ary public and capital spending and falling imports. tion contracted by 8.5 percent during the first The outlook is subject to significant down- 10 months of 2024. With the closure of major oil side, as well as upside risks. The recent CBL crisis fields announced by the Benghazi based authorities highlights the fragility of the political situation which late August, average oil production fell from 1.17 mbpd had a direct short-term impact on the economy. before the crisis to 0.95 and 0.54 mbpd in August and Prospects for political stability and consensus would September, respectively. With the resolution of the CBL be a major upside for the Libyan economy and crisis, oil production ramped up to reach 1.3 mbpd citizens. In the medium term, the main challenge towards end of October. Oil prices hovered around its remains economic diversification and reducing 2023 level of $80 per barrel during the first 10 months dependence on hydrocarbons. Lower oil prices not of 2024 with noticeable fall in recent months to reflect only reduce government revenues but would also xi add fiscal burden through higher cost of subsidies. than the realized GDP. The high reliance on the oil Intensification of regional conflicts in the Middle East sector, weak diversification, low and falling productivity may disrupt trade, FDI, and financial flows but may owing to inefficient allocation of labor and capital, and also create revenue windfalls for Libya through higher deteriorating health and education quality are some of oil prices. Extreme climate events may cause loss of the key challenges that are holding back Libya’s long- human lives, severe damage to infrastructure, lower term prosperity. In the short-term, priorities should be growth, and financial instability. enhanced security, governance and stability. With GNI The Special Focus Section “Stabilizing per capita at $7,570 (2023), Libya is classified as an Growth and Boosting Productivity” provides an upper-middle-income country, however, it falls behind overview of Libya’s past drivers of economic its peers on most development indicators. With the growth and productivity trends. For over a decade global transition to cleaner and greener energy, Libya’s now, the conflictual transition has had a devastating growth strategy should focus on promoting non-oil impact on the Libyan economy, estimated at US$600 sectors with high value-added job opportunities to billion in constant 2015 dollars. In 2023, Libya’s GDP maintain its upper-middle-income status. This could be absent the conflict is estimated to be 74 percent higher achieved by promoting private sector-led growth. xii LIBYA ECONOMIC MONITOR – STABILIZING GROWTH AND BOOSTING PRODUCTIVITY 1 RECENT ECONOMIC DEVELOPMENTS Conflict and Institutional remained about the absence of a functioning Board Developments of Directors. Establishing a unified government frame- The recent CBL crisis ended with the appointment work that recognizes the CBL as an independent of a new Governor and Deputy Governor and institution could help eliminate the pervasive Board of Directors. The crisis, which started in influence of political agendas on monetary policy. August 2024, over the appointment of CBL Governor Fostering dialogue among stakeholders, including and Board of Directors resulted in a politically civil society, private sector, and local authorities, is motivated halt of oil flows across Libyan oilfields. The essential to create a consensus on economic gov- oil blockade lasted a month, with daily output falling to ernance. Implementing measures to enhance about 0.45 mbpd at the peak of the blockade. transparency and accountability within the CBL will The CBL has been at the center of a power also be crucial in rebuilding public confidence and struggle between the country’s rival governments ensuring that monetary policies effectively support and factions due to its holdings of hydrocarbon economic recovery and stability in Libya. revenue and fiscal management role. Officially, Despite the approval of a unified 2024 the CBL is the recipient of Libya’s oil money, that budget by the House of Representatives (HoR), is channeled by the National Oil Company (NOC). disputes rose between political factions over its It disburses these funds to finance the Government implementation.1 This year the CBL and other actors of National Unity (GNU) as well as the wages and salaries of Libyans across the country. As a result, the CBL played a role that is bigger than the role 1 The GNU’s Budget has not been approved by the HoR since 2021 but is financed by the hydrocarbon assumed by typical central banks in other countries revenues through the CBL, while the Government of and emerged as an economic power center within National Stability’s (GNS) Budget has been approved by the Libyan context. Over the past year, important the HoR since 2022 but lacks access to the country’s progress was made to reunify the CBL, but criticism hydrocarbon revenues. None of the budgets follow 1 Spatial Disparities Among Regions FIGURE 1 •  FIGURE 2 • Unemployment Rates (GDP per Capita) Percent GDP per capita in US dollars 80 12,000 70 10,000 60 8,000 50 6,000 40 4,000 30 20 2,000 10 0 Tripoli Az Zawiyah Al Marqab Al Wahat Al Jifarah Benghazi An Nuqat al Khams Wadi al Hayat Wadi al Hayat Shati' Al Kufrah Al Jufrah Al Jabal al Akhdar Surt Al Marj Al Jabal al Gharbi Sabha Ghat Misratah Nalut Murzuq Darnah Al Butnan 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Unemployment, youth female Unemployment, youth total Unemployment, female Unemployment, total Source: World Bank estimation based on RDNA methodology. Source: modeled ILO estimate. called for the negotiation of a unified budget which historically characterized by centralized decision- was supported by the international community. In July making, regulatory opacity, and an extensive and 2024, the House of Representatives (HoR) approved unwieldy public sector. The state’s historical eco- a LYD 179 billion (US$ 37 billion) unified budget nomic dominance gave rise to numerous committees, which included development projects for all regions agencies, holding companies, and monopolies. of the country. However, the Budget was disputed by Despite initial privatization and liberalization efforts political factions on specific implementation arrange- in 2003, the public sector continues to grapple ments, especially, on revenues and public investment. with inefficiency, a lack of transparency, and inad- Discussions are currently underway for the prepara- equate coordination. After the 2011 revolution, the tion of the 2025 unified budget. situation further deteriorated with the multiplication Large disparities among regions and seg- of redundant political and administrative authorities ments of the society exit in Libya. In 2023, the and ambiguous mandates for state-owned entities gap between the richest governorate, Tripoli, and worsened by the country’s division. This entrenched the poorest ones, Derna and Al Butnan, was about legacy continues to pose significant challenges to 35 percent2 (Figure 1). Furthermore, the national the country’s institutional governance and capacity. unemployment rate in 2023 is 18.7 percent, with a Libya scored well below the MENA average in all the higher rate of 24.7 percent for women (Figure 2). 2022 Worldwide Governance indicators, particularly However, it is estimated that 49.4 percent of youth is unemployed, and the rate reaches 68 percent for regular budget processes that provide for accountability female youth. Unemployment has remained relatively and transparency. The GNU covers salaries and stable since the revolution, as 89 percent of the subsidies for the whole country, while none of these Libyan labor force is employed in the public sector entities have long-term public investment plans, and infrastructure development and maintenance have (Labor Force Survey 2022), but exceeds Arab States largely been on hold with dramatic consequences such of 24.5 percent.3 as the Derna tragedy in 2023. Public governance has been at the core 2 Libya Economic Monitor, Fall 2023, World Bank. of the division. Libya’s institutional legacy has been 3 ILO estimates, June 2024. 2 LIBYA ECONOMIC MONITOR – STABILIZING GROWTH AND BOOSTING PRODUCTIVITY FIGURE 3 • Worldwide Governance Indicators violent incidents more than doubled this year rising from 73 in 2023 to 157 incidents until Oct 2024. The Control of Corruption peak occurred in July and August (Figure 5) indicat- 0.0 ing a possible connection to the CBL crisis. –0.5 Voice and –1.0 Government Accountability Effectiveness –1.5 Economic Growth and Hydrocarbon –2.0 Sector –2.5 In the aftermath of the CBL crisis, oil production Rule of Law contracted by 8.5 percent during the first Political Stability and Absence of 10 months of 2024. When Benghazi-based Violence/ Terrorism authorities closed major oil fields in late August in Regulatory Quality the wake of the CBL crisis, average oil production Libya MENA average fell from 1.17 mbpd before the crisis to 0.95 and 0.54 mbpd in August and September, respectively. Source: World Bank, 2022 Following the resolution of the CBL crisis, oil production ramped up and reached 1.3 mbpd by the in “political stability and violence” (–2.2), “regulatory end of October, with an average of 1.09 mbpd during quality” (–2.1), “rule of Law” (–1.8) and “Government the first 10 months 2024. Meanwhile, oil prices effectiveness” (–1.8) (Figure 3). Institutional dysfunc- remained close to their 2023 level of $80 per barrel tion related to the divided authorities, and continuous during the first 10 months of 2024. However, there conflict over a decade, impacted public infrastructure was a noticeable decline in August, September, and and services availability and safety in all economic October 2024, reflecting a slowdown in global oil and social areas. demand, particularly from China, despite increasing Despite improvement in recent years, the geopolitical risks (Figure 6). overall security situation has deteriorated over Meanwhile, government spending on wages the course of this year (Figure 4). The number of suggests that private consumption stayed robust FIGURE 4 • Number of Violent Events in Libya FIGURE 5 • Number of Violent Events in Libya (2011–Oct 2024) (monthly 2024) Number of Violent Events No. of Violence Incidence 1,600 30 1,400 25 1,200 20 1,000 15 800 600 10 400 5 200 0 January Febraury March April May June July August September October 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Source: Armed Conflict Location & Event Data Project (ACLED). Source: Armed Conflict Location & Event Data Project (ACLED). Recent Economic Developments 3 FIGURE 6 • Monthly Average Oil Production and GDP Growth Performance FIGURE 7 •  Price Developments 80 1,400 140 60 1,200 120 40 GDP per capita in US dollars 1,000 100 20 800 80 USD/barrel 0 tbpd 600 60 –20 400 40 –40 200 20 –60 0 0 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Jul-22 Oct-22 Jan-23 Apr-23 Jul-23 Oct-23 Jan-24 Apr-24 Jul-24 Oct-24 –80 2018 2019 2020 2021 2022 2023 Crude oil production (LHS) Crude oil average price (RHS) Hydrocarbon GDP Non-Hydrocarbon GDP Real GDP Source: EIA, OPEC. Source: Ministry of Planning and World Bank calculations. during the first 10 months of 2024. About 89 percent the largest investment in the hydrocarbon sector since of the Libyans are employed in the public sector (Labor the 2011 revolution. The non-hydrocarbon sector also Force Survey 2022). Wages and salaries item in the rebounded by 3.8 percent in 2023, against a contrac- budget reported an increase of 15 percent during the tion of 3.7 percent in 2022, driven by the recovery in first three quarters of 20244 to reflect higher wages and services (1.2 percent) and agriculture (6.8 percent). payments of arrears. This increase in spending sug- gests that private consumption stayed robust during this period. Government current spending increased Public Finances by 3.6 percent which also plays a significant role in Despite the drop in oil receipts, the fiscal determining the performance of non-oil activities. balance registered a surplus as a result of falling Despite the Derna tragedy, economic perfor- government spending.6 According to the authorities’ mance stayed strong in 2023 driven mainly by oil data for the first 10 months of 2024 (Figure 8), non- production and the recovery in non-oil activities.5 hydrocarbon revenues increased from 0.9 percent GDP growth reached 10.2 percent in 2023, a result of to 1.2 percent of GDP supported by higher income increasing oil production, which grew by 17 percent, and profit taxes. However, its marginal share in the to reflect the relative security and stability during that revenues did not compensate for the significant drop year (Figure 7). Oil production reached an average of in hydrocarbon revenues which fell by more than 1.2 mbpd, up from 1.05 mbpd in 2022, but well below 16 percent during the same period to reflect lower oil its pre-conflict level of 1.7 mbpd in 2010. The National production (from 43 percent to 37 percent of GDP). Oil Company (NOC) aims to produce 2 mbpd by the Meanwhile, overall public spending contracted by end-2025. Accordingly, the GNU has been allocating 7.5 percent compared to the same period last year higher budgets to the NOC, about LYD 34 billion in with capital spending bearing the brunt of the cut 2022, LYD 17.5 billion in 2023, and LYD 6.7 billion dur- (falling by 62 percent) while current spending grew ing the first 10 months of 2024. Three major oil firms were called to resume operations in August 2023 4 Source: CBL website. after a ten-year shutdown due to force majeure. In 5 IMF, Article IV Consultations (2024). addition, large projects were signed in 2023, including 6 Budget spending include budgetary and extra-budgetary a US$8 billion offshore gas field project, which was (NOC ad GECoL) spending. 4 LIBYA ECONOMIC MONITOR – STABILIZING GROWTH AND BOOSTING PRODUCTIVITY by 3.6 percent driven by higher wages. Based on FIGURE 8 • Government Operations (GNU) these developments, the fiscal surplus stood at LYD 70 80 4.6 billion (2 percent of GDP). 60 60 This marks a slight improvement in the fiscal position, with GNU’s final accounts reporting an 50 40 Percent of GDP Percent of GDP almost balanced budget in 2023—the fiscal deficit 40 20 stood at 0.1 percent of GDP. Total expenditures 30 0 contracted by 1.7 percent in 2023, reaching LYD 125.7 20 –20 billion, which was sufficient to close the drop of total 10 –40 revenues, which dropped by 5.9 percent to reach LYD 0 –60 125.5 billion. The fall in revenues came as a result of fall- 2021 2022 2018 2020 2015 2016 2017 2019 2023 2024 - 10mo. ing oil prices despite the increased in production levels, while total spending fell to reflect lower capital spending Wages & salaries (lhs) Goods & services (lhs) of 6.4 percent. Meanwhile, subsidies, which account for Subsidies & transfers (lhs) Capital expenditure (lhs) 16 percent of total spending, remained stable (Box 1). Overall balance (rhs) Hydrocarbon revenue (rhs) Source: Libyan Authorities (MoF, CBL), World Bank Staff Estimates. External Sector same period of 2023 (Figure 9). The fall in oil export During the first half of 2024, the trade surplus receipts, which fell by 6 percent (y-o-y), was more than slightly narrowed by 1.8 percent compared to the compensated for by the fall in merchandise imports, SUBSIDIES SYSTEM IN LIBYA BOX 1:  Libya’s subsidy program was introduced in 1971 for essential food and energy products, as well as public services (water, sanitation, education and garbage collection), medicines and animal feed. Prices of essential consumption items are administered at affordable prices and protect consumers from global price shocks. An attempt to reform the system was initiated during 2005–2010 but was reversed before the 2011 revolution to respond to the social discontent. The system continues to weigh on the state budget. In addition to the public sector employment, subsidies and administered prices in Libya are part of the social contract and accounted for 9.3 percent of GDP on average during 2015–2023 according to the GNU budget. The Libyan subsidies system is highly inefficient, as a large part of the subsidized fuel is smuggled to neighboring countries. Fuel smuggling from Libya is estimated to be at least US$5 billion per year.a Since Libya has limited refinery capacity, it imports or “swaps” fuel and sells to the public for subsidized prices. Fuel import from Russiab (mainly through “oil swap”) has been increasing since February 2023 following the EU embargo on Russian oil products. Libya is the world’s third largest buyer of Russian diesel and the largest in the Arab world. Moreover, fuel smuggling from Benghazi port is estimated to have significantly increased since the war in Ukraine. In addition to the high fiscal cost, subsidized fuel smuggling contributes to the fuel shortages domestically. With a subsidized price of LYD 0.15 per liter, Libya is ranked as the second cheapest fuel in the world after Iran. Contradictorily, fuel shortages are frequent in the South and prices can reach up to LYD 7 per liter in the parallel market when available. There are regular talks of reforming the subsidy system, most recently in January 2024, where the GNU announced replacing the fuel subsidy with cash transfer. However, reforming social rent and redistribution system is challenging for a government which faces political instability and limited mandate and representativeness. Subsidy reforms in Libya should be accompanied with adequate cash transfers. A World Bank study on subsidy reformsc suggests that gasoline and electricity subsidies, which take up more than 90 percent of household energy consumption and, correspondingly, the same share of government spending on subsidies, are highly regressive in absolute terms. An individual in the upper quintile benefits 3.5 times more from subsidies for electricity and gasoline than an individual in the bottom quintile. a Financial Times, Agenzia Nova. b Financial Times, Agenzia Nova. c The World Bank, The Quest for Subsidy Reforms in Libya, 2015. Recent Economic Developments 5 FIGURE 9 • Monthly Trade Balance Balance of Payments & FIGURE 10 •  International Reserves 5,000 15 80 4,000 78 10 3,000 76 USD billion Percent of GDP 5 74 USD billion 2,000 0 72 1,000 68 0 –5 66 –1,000 –10 64 2021 2022 2023 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Jul-22 Oct-22 Jan-23 Apr-23 Jul-23 Oct-23 Jan-24 Apr-24 Current account (lhs) Capital and financial account (lhs) Trade balance Exports (FOB) Imports (CIF) International reserves (rhs) Sources: DOTS, IMF. Sources: IMF. a y-o-y decrease of 10 percent. The contraction in decreasing, Libya faces structural capital outflow, imports during the first half of 2024 came as a result due to security and political instability, the weak of the February 2024 introduction of tighter access financial sector, limited monetary and exchange rate to foreign currencies, the implementation of foreign management, and more importantly to deep-rooted currency transaction fees in early March 2024, and governance issues. the depreciation of Libyan dinar in the parallel market. Import recovery is anticipated after the October 2024 relaxation of access to foreign currencies and Inflation and Monetary Sector lowered foreign currency transaction fees. Recent According to official statistics, inflation slowed resumption of onshore exploration activities in Libya to an average of 2 percent during the first nine by large oil companies (Eni, BP, Repsol, and OMV) months of 2024, down from 2.6 percent at the mark promising developments for oil exports and FDI same period in 2023 and 5.7 percent in March 2022, inflows into the country. following a currency devaluation (Figure 11). Food In 2023, the current account surplus nar- prices, which rose by 4.1 percent on average in rowed to 6.4 percent GDP against 12 percent September 2024, were the main driver, due to tight of GDP in 2022. Despite a rebound in hydrocar- access to foreign currency for imports (Figure 12). bon production, the in 2023 the export bill fell by However, the official CPI covers primarily the Tripoli 16 percent due to softening global oil prices.7 At area, which helps explain the low inflation rate the same time, renewed investment spending in the despite LYD’s depreciation on parallel market during hydrocarbon sector boosted imports by 2 percent. this period. The reserves have nevertheless increased from In a response to lower global oil prices and US$74.1 billion at end-2022 to US$78.3 billion at end- to preserve foreign reserves, the CBL tightened 2023 (Figure 10) and have remained high, equivalent access to foreign currencies in early 2024, by to about three years of imports, thanks to growing limiting issuance of letters of credit and individuals’ FDI in the hydrocarbon sector. The return of three major oil firms after a decade’s absence and signing of big hydrocarbon contracts led to the FDI net inflow 7 The OPEC+ countries have been implementing oil increase by 260 percent in 2023. However, although production cuts since April 2023 to sustain oil price. 6 LIBYA ECONOMIC MONITOR – STABILIZING GROWTH AND BOOSTING PRODUCTIVITY FIGURE 11 • CPI Inflation Rate Contribution to CPI Inflation Rate FIGURE 12 •  8 8 6 6 4 4 2 2 Percent 0 0 Percent –2 –2 –4 –4 –6 –6 –8 –8 –10 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Jul-22 Oct-22 Jan-23 Apr-23 Jul-23 Oct-23 Jan-24 Apr-24 Jul-24 –10 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Jul-22 Oct-22 Jan-23 Apr-23 Jul-23 Oct-23 Jan-24 Apr-24 Jul-24 Food & Beverage Housing, Water, Electricity,Other Fuels Inflation rate Food & Beverage Transport Others* Inflation rate Source: BSC, CBL. Source: BSC, CBL. FIGURE 13 • Liquidity Pressure FIGURE 14 • Money Supply and Components 120 Percent 200 100 150 80 100 50 Growth in percent 60 0 40 –50 –100 20 –150 0 –200 –250 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024-Q2 –20 –40 2010-Q1 2010-Q3 2011-Q1 2011-Q3 2012-Q1 2012-Q3 2013-Q1 2013-Q3 2014-Q1 2014-Q3 2015-Q1 2015-Q3 2016-Q1 2016-Q3 2017-Q1 2017-Q3 2018-Q1 2018-Q3 2019-Q1 2019-Q3 2020-Q1 2020-Q3 2021-Q1 2021-Q3 2022-Q1 2022-Q3 2023-Q1 2023-Q3 2024-Q1 Other items net Net claims on other sectors of the economy Net claims on government Net foreign assets Money supply (M2) Currency outside the banks Unemployment, youth female Source: CBL. Source: CBL, World Bank staff calculation. purchases (Circular No. 2, February 2024).8 Similarly, (Figures 13–14). Additionally, the CBL extended a temporary 27 percent tax on all foreign exchange the period for withdrawing the LYD 50 banknote to purchases was introduced in March 2024 to limit March 2025. access to foreign exchange and increase the state revenue until end 2024.9 Money supply (M2) and currency outside banks continued to grow, reaching 8 Only the Tripoli branch of the CBL could provide foreign 31.8 percent y-o-y during the first quarter 2024 and exchange through letters of credit. 9 In August, the same decision was published in the 37.6 percent in the fourth quarter 2023. However, Official Gazette for the second time since last March, following CBL’s foreign exchange decisions, this while three courts ruled the decision illegal. The HoR growth has slowed, with rates dropping to 20.9 per- decided early October 2024 to reduce the forex tax to cent and 10.9 percent respectively in June 2024 20 percent. Recent Economic Developments 7 This led to a growing gap between official Monthly Official and Parallel FIGURE 15 •  and parallel foreign exchange rates (Figure 15) LYD/USD Exchange Rate (period Average) and increased liquidity pressure, reversing the trend of monetary easing since the 2021 devalu- 8 ation.10 The gap between the official and parallel 7 markets widened, driven by a higher demand for 6 foreign exchange fueled by high public spending, 5 the reported money printing in the East to finance LYD/USD reconstruction projects, and higher fuel imports and 4 smuggling. At the peak of the blockade and the CBL 3 crisis, the parallel market rate was 69 percent higher 2 than on official market,11 against 3.9 percent at the 1 lowest level after the devaluation in September 2022. 0 The resolution of the CBL crisis and HoR’s decision Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Jul-22 Oct-22 Jan-23 Apr-23 Jul-23 Oct-23 Jan-24 Apr-24 Jul-24 Oct-24 to reduce the tax on foreign exchange from 27 to 20 percent in early October narrowed the gap between Official Parallel official and parallel exchange rates to 32 percent. This cycle shows that as long as there are Source: CBL, FX Black Market Facebook Page. no consistent macroeconomic, fiscal, and mon- etary policies, the depreciation trend and liquidity limited access to the foreign currency and LYD cash.12 pressure will continue as the economy remains However, large cash printing by the Benghazi based vulnerable to shocks. Although the 2021 devalua- authorities has been regularly reported. tion combined with the CBL reunification process had helped monetary easing and growth (attenuated the liquidity pressure and leading to inflation in 2022, 10 Libya uses a fixed exchange rate linked to IMF Special and a narrower gap between the official and informal Drawing Rights as the key nominal anchor. foreign exchange rates), the Libyan economy has 11 Rate on the September 19, 2024. been in structural under-liquidity, especially in the 12 During the 10 months of 2024, the CBL disbursed LYD eastern part of the country, due to the conflict and 52.8 billion to commercial banks located in all cities. 8 LIBYA ECONOMIC MONITOR – STABILIZING GROWTH AND BOOSTING PRODUCTIVITY 2 OUTLOOK AND RISKS L ibya’s economic outlook is intricately tied to and average around 9 percent during 2025–2026 to the global oil market due to its heavy reliance reflect strong recovery of oil exports. on the oil and gas sector, which constitutes Inflation in Tripoli will remain muted over approximately 60 percent of its GDP, 97 percent of the medium term.11 With the resolution of the CBL government revenue, and 94 percent of exports. crisis and relaxing the access to foreign currency Accordingly, Libya’s economic prospects are highly through issuance of letters of credit and lowering dependent on the stability of its oil production and transaction fees, inflation is expected to stay con- global oil markets developments. The former is often tained and relatively low at around 2.6 percent during determined by the domestic security and stability the forecast period (Figure 17). This is also supported situation whereas the latter is dependent on global by moderating global commodity prices, and the gen- and regional outlooks (Box 2). erous subsidy system and limited access to foreign As a result of global and regional market currencies in Libya that shields households and busi- stabilizations, and the affects of the oil market in nesses from imported inflationary pressures. general, Libyan economy is expected to contract The fiscal position is expected to improve by 2.7 percent in 2024 driven by lower oil sector in 2024 before strengthening further in 2025 activities. With oil production expected to average and 2026 (Figure 18). With the contraction of public 1.1 mbpd in 2024, which is 6.1 percent lower than 2023 spending as a result of the significant fall in capital average of 1.2 mbpd, GDP is anticipated to shrink by expenditures, the fiscal balance is expected to reg- 2.7 percent this year (Figure 16). As oil output recov- ister a surplus of 1.7 percent of GDP despite the fall ers in 2025 and 2026, reaching 1.2 and 1.3 mbpd, in oil revenues. On the other hand, current spending respectively; GDP growth is expected to rebound to is expected to continue on its growth path, driven by 9.6 percent and 8.4 percent in 2026. Meanwhile, non- oil GDP growth is estimated to grow by 1.8 percent in 13 Inflation forecasts are based on the official CPI which 2024 supported by private and public consumption, covers primarily Tripoli area. 9 BOX 2: GLOBAL, REGIONAL, AND OIL MARKET PROSPECTS The global economy is stabilizing, following several years of negative shocks. Global growth is projected to hold steady at 2.6 percent this year,a despite flaring geopolitical tensions and high interest rates, before edging up to 2.7 percent in 2025–26 (Figure B.1) alongside modest expansions of trade and investment. Global inflation is expected to moderate at a slower clip than previously assumed, averaging 3.5 percent this year. Central banks in both advanced economies and emerging market and developing economies (EMDEs) are likely to remain cautious in easing policy. As such, markedly higher interest rates than prior to the pandemic are set to sustain for an extended period. Despite some improvement, the outlook remains subdued. Global growth over the forecast horizon is expected to be nearly half a percentage point below its 2010–19 average, with a slower pace of expansion in economies comprising over 80 percent of the global population. EMDE growth is projected to moderate from 4.2 percent in 2023 to 4 percent in 2024. Economic activity in the Middle East and North Africa (MENA) is expected to rise to 2.5 percent in 2024, after slowing to 1.9 percent in 2023. This pickup in growth in 2024 masks important disparities within the region. For the Gulf Cooperation Council (GCC) countries, the expected phase-out of additional oil production cuts starting from October 2024 is anticipated to help pick up growth from 0.7 percent in 2023 to 2 percent in 2024. Growth is expected to decelerate in both developing oil exporters, with a slight decline from 3.3 percent in 2023 to 3.1 percent in 2024, and developing oil importers, with a decrease from 3.1 percent in 2023 to 2.7 percent in 2024. The latter’s decline reflects the conflict’s impact on these economies, exacerbating their pre-existing vulnerabilities. Oil price is projected to average $80/bbl in 2024, about $3/bbl lower than last year, with prices expected to hover around $75 for the rest of the year before drifting lower to $73/bbl in 2025 and $72/bbl in 2026 (Figure B.2). This projection is predicated on no prolonged escalation in ongoing armed conflicts, a slowdown in oil demand growth, and a well-supplied oil market. Indeed, under these baseline assumptions, global oil supply next year is expected to exceed demand by an average of 1.2 mb/d—a degree of oversupply only surpassed during COVID-19-related shutdowns in 2020 and the 1998 oil price collapse. Global and MENA GDP Growth FIGURE B.1 •  Oil Price Outlook FIGURE B.2 •  Prospects 82 4.5 4.0 80 3.5 78 3.0 Percent USD per Barrel 2.5 76 2.0 1.5 74 1.0 72 0.5 0.0 2023 2024 2025 70 World MENA 68 2023 2024 2025 Source: Global Economic Prospects, June 2024; MENA Economics Update, Oct 2024. Source: Commodity Market Outlook, October 2024. a GEP, June 2024. wages and salaries, while tax revenues are projected driven by the decline in imports (Figure 19). to stay low during the forecast period (less than 2 per- Merchandise imports are expected to fall by 10 per- cent of GDP). Implementing a unified budget in 2025 cent, reflecting the tight access to foreign currency will improve fiscal consolidation efforts and enhance and letters of credit for most of the year. This decrease credibility and transparency measures. in the imports bill will overcompensate for the drop in Similarly, the current account surplus is exports receipts which is expected to fall by 8 percent. expected to widen to 4.1 percent of GDP in 2024 In 2025–2026, the recovery of oil exports is expected 10 LIBYA ECONOMIC MONITOR – STABILIZING GROWTH AND BOOSTING PRODUCTIVITY GDP Growth Forecast and FIGURE 16 •  Inflation Rates and Global FIGURE 17 •  Contributions Commodity Prices 12 5.0 112 10 111 4.5 8 110 Index base (2020=100) 6 4.0 109 4 Percent Percent 3.5 108 2 107 0 3.0 –2 106 2.5 –4 105 –6 2.0 104 2024 2025 2027 2024 2025 2026 Hydrocarbon GDP Non-Hydrocarbon GDP GDP Inflation (LHS) Agriculture prices (RHS) Source: WB staff calculations. Source: WB staff calculations; Commodity Prices Outlook, Oct 2024. FIGURE 18 • Fiscal Balance (2024–2026) FIGURE 19 • External Balance (2024–2026) 10 70 25 9 20 60 8 15 7 50 Percent of GDP Percent of GDP 10 Percent of GDP 6 40 5 5 4 30 0 3 20 –5 2 10 –10 1 0 0 –15 2024 2025 2026 2024 2025 2026 Revenues (RHS) Expenditures (RHS) Fiscal balance (LHS) Trade balance Income balance Current account Source: WB staff calculations. Source: WB staff calculations. to improve the external balance position to 8.3 and internally (dependence on the political situation) and 11.7 percent of GDP, respectively. externally (developments in international markets). The outlook is subject to significant down- Lower oil prices not only reduce government revenues side as well as upside risks. The recent CBL-related but also increase fiscal pressures due to higher subsi- events highlight the fragility of the political situation, dies cost. On the other hand, intensification of regional which had a direct short-term impact on the economy. conflicts could disrupt trade, FDI and financial flows Prospects for political stability and consensus would but may simultaneously create revenue windfalls for be a major upside for the Libyan economy and citizens. Libya if oil prices rise. Additionally, extreme climate In the medium term, the main economic challenge events may cause loss of human lives, severe infra- remains diversification and reducing dependence structure damage, reduced economic growth, and on hydrocarbons, which is a source of fragility both heightened financial instability. Outlook and Risks 11 TABLE 1 • Key Macroeconomic Indicators, 2021–26 2021 2022 2023 2024 2025 2026 Real GDP Growth, at constant market prices 28.3 –8.3 10.2 –2.7 9.6 8.4 Agriculture 6.0 10.0 6.8 –1.2 1.3 1.2 Industry 45.0 –17.0 17.8 –5.9 8.0 8.0 Services 9.2 –1.9 1.2 3.2 12.9 9.7 Inflation (Consumer Price Index) 2.8 4.6 2.3 2.5 2.4 2.9 Current Account Balance (% of GDP) 16.1 21.2 3.0 4.1 8.4 11.7 Fiscal Balance (% of GDP) 12.5 2.7 –0.1 1.7 6.5 9.2 Oil GDP Growth 45.0 –17.0 17.8 –6.1 8.4 8.3 Non-Oil GDP Growth 13.7 –3.9 3.8 1.8 11.1 8.5 GDP Nominal in US$ (millions) 34,447 43,304 45,079 42,913 50,329 55,565 12 LIBYA ECONOMIC MONITOR – STABILIZING GROWTH AND BOOSTING PRODUCTIVITY 3 SPECIAL FOCUS: STABILIZING GROWTH AND BOOSTING PRODUCTIVITY T his section provides an overview of Libya’s promoting non-oil sectors with high value-added job past drivers of economic growth and opportunities to maintain its upper-middle-income productivity trends. For over a decade now, status. This could be achieved by promoting private the conflict has had a devastating impact on the sector-led growth. Libyan economy, estimated at US$600 billion in constant 2015 dollars. In 2023, Libya’s GDP absent the conflict is estimated to be 74 percent higher than Stages of Development the realized GDP. Heavy reliance on the oil sector, weak diversification, low and falling productivity Libya’s economic trajectory over the past due to inefficient allocation of labor and capital, and three decades has been heavily affected by deteriorating education quality are some of the key international sanctions, political dynamics, and challenges that are holding Libya back from long- oil market fluctuations (Figure 20). During the term prosperity. In the short-term, priority should be 1990s, GDP growth averaged only 1.1 percent, partly channeled to security and enhanced stability. With affected by the sanctions that froze Libyan assets and GNI per capita at $7,570 (2023), Libya is classified imposed an embargo on oil equipment and spare as an upper-middle-income country, however, it falls parts. With the lifting of sanctions in the early 2000s, behind its peers on many development indicators. GDP growth improved to an average of 4.3 percent With the global transition to cleaner and greener between 2000 and 2010, supported by increased oil energy, Libya’s growth strategy should focus on production, exports, and revenues. Following the fall 13 FIGURE 20 • Decades of International Sanctions, Political Instability and Oil Prices Volatility UN and US International Integration to World Political instability and conflict 200 5 4.3 percent Oil production 4 150 disruption 3 COVID-19 Global financial/ Fall of pandemic 100 1.1 percent Gadhafi 2 Lifting of economic UN sanctions regime Percent Percent crisis 1 50 0 0 –1 –2 –50 Lockerbie UN Suspension of –3.3 percent sanctions UN sanctions –3 –100 –4 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 GDP growth Oil GDP growth Nonoil GDP growth Average GDP growth rate per year (rhs) Source: UN, World Bank staff estimates and calculations. of the Gadhafi regime in 2011, political instability in GDP growth rate, surged by 465 percent, increasing Libya has led to institutional fragmentation and conflict from 6 percent during 2000–2010 to 34 percent over over oil resources. Despite international mediation 2011–2023. Between 2011 and 2023, the standard efforts, economic performance was hindered by deviation of Libya’s output growth was about 926 per- reduced oil production due in part to the blockades cent higher than the median value for its structural and seizures of key oil terminals by rival factions, and and aspirational peers, while non-oil GDP growth external shocks such as the COVID-19 pandemic was 257 percent more volatile (Figure 23). (Annex 1 and the crisis caused by the war in Ukraine, leading provides details on the selection of structural and to an average annual GDP contraction of 3.3 percent aspirational peers). between 2011 and 2023. While Libya’s oil wealth has sustained A decade of conflict has taken a severe the country’s classification as an upper-middle- toll on the Libyan economy. Since 2011, real income nation since the onset of the conflict, its GDP and real GDP per capita in Libya has diverged development in many ways resembles that of a significantly from the growth trends of other Middle low-income and fragile state. Between 2011 and East and North Africa countries, as well as fragile 2023, Libya’s performance in terms of institutional and conflict-affected (FCV) nations and those with capacity and business environment, encompassing similar income level (Figures 21 and 22). The World key indicators such as corruption control, political Bank’s estimates reveal that in 2023, Libya’s GDP stability, rule of law, and electricity access, lagged would have been 74 percent higher in the absence significantly behind the average for its income group of conflict, equating to US$118 billion instead of the (Figure 24). Additionally, Libya performed worse than realized US$68 billion (in 2015 constant prices). the average of FCV countries in most indicators, with Cumulative economic losses over the 2011–2023 the exceptions of life expectancy and access to elec- period are estimated at US$600 billion in constant tricity (Figure 25). 2015 dollars—around 7 times the pre-conflict GDP of 2010 (see Box 3). Libya’s GDP has also become more volatile 14 The standard deviation measures the spread and due to blockades and conflict events. Growth vola- variability of output growth around its mean over the tility, measured using the standard deviation12 of the period of analysis. 14 LIBYA ECONOMIC MONITOR – STABILIZING GROWTH AND BOOSTING PRODUCTIVITY Real GDP in Libya and other FIGURE 21 •  FIGURE 22 • Real GDP Per Capita in Libya and Country Groups (2010=100) other Country Groups (2010=100) 160 140 140 Libya Civil War Libya Civil War 120 120 100 Index (2010=100) Index (2010=100) 100 80 80 60 60 40 40 20 20 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Libya Low income MENAs Libya Low income MENAs MENAs (excl. high income) FCSs World MENAs (excl. high income) FCSs World Source: World Bank Indicator, World Bank staff estimates and calculations. Source: World Bank Indicator, World Bank staff estimates and calculations. Predominance of Oil and Public Sector of GDP, financed more than 78 percent of the fiscal revenues, and represented 92 percent of exports For decades, Libya’s economic growth and (Figure 26). Relative to its peers, which are also oil- government budget have been heavily dependent dependent, Libya has a much smaller manufacturing on oil production and exports. From 1990 to sector as a share in GDP (Figures 27 and 28). 2023, oil contributed, on average, over 64 percent This is largely due to economic policy orientations BOX 3: ESTIMATING THE ECONOMIC COST OF CONFLICT ON THE LIBYAN ECONOMY The Synthetic Control Method (SCM), developed by Abadie and Gardeazabal (2003) and extended by Abadie et al. (2010, 2015), is employed to estimate a counterfactual GDP for Libya, providing a good understanding of the economic impact in the absence of conflict. Admittedly, this is a partial, indicative picture of the massive destruction brought by the conflict, including the plight of the refugees, the loss of physical and social infrastructure, housing stock, institutions, human capital, and the impact on the mental and physical health of the affected communities. The SCM approach consists of searching for a weighted combination of countries that resemble as closely as possible the economic characteristics of the country during the pre-conflict period to create a synthetic economy to predict what the country would likely perform in the absence of conflict.a Based on analysis of a cross-country panel data set for the period between 1995 and 2010, synthetic Libya is made of 8 countries, with the weights in parentheses: Kuwait (0.35), Zimbabwe (0.219), Congo, Dem. Rep. (0.212), Estonia (0.118), Ukraine (0.043), Argentina (0.025), Indonesia (0.017), and Turkiye (0.015). Libya’s GDP experienced a substantial decline following the onset of the Libyan crisis in 2011, with actual GDP dropping to US$42 billion while the counterfactual GDP, had the conflict not occurred, was estimated at US$90 billion (Figure B.1). Reflecting the prolonged economic strain resulting from the conflict, the gap between actual and counterfactual GDP levels widened in the following years. In 2023, Libya’s GDP absent the conflict (the counterfactual) would have been 74 percent higher than the realized GDP (i.e., US$ 118 billion, compared to US$ 68 billion, in 2015 constant prices). Aggregating the differences between counterfactual and actual GDP between 2011 and 2023 shows that cumulative economic losses amount to US$600 billion in 2015 constant prices, equivalent to about 7 times the pre-conflict Libyan GDP recorded in 2010, underscoring the devastating impact of the conflict on Libyan economic activity. Special Focus: Stabilizing Growth and Boosting Productivity 15 BOX 3: ESTIMATING THE ECONOMIC COST OF CONFLICT ON THE LIBYAN ECONOMY (continued) FIGURE B.3 • Actual GDP, Counterfactual GDP, and Economic Loss 140 700 120 600 Billions, constant 2015 US$ Billions, constant 2015 US$ 100 500 80 400 60 300 40 200 20 100 0 0 1995 1999 2003 2007 2011 2015 2019 2023 Cumulative loss (RHS) Actual GDP levels Counterfactual GDP Source: World Development Indicators, Center for Systemic Peace, International Monetary Fund, World Bank staff estimates a The list of variables identifying a country’s economic characteristics captures, in a broad sense, the structure of the economy (e.g., shares of industry, services, and agriculture, along with trade openness), the status of institutions and demography, in addition to traditional growth accounting indicators such as the stock of physical and human capital. FIGURE 23 • GDP and Non-Oil GDP Volatility in Libya and Structural and Aspirational Peers (2000–2023) A. Structural peers B. Aspirational peers 50 50 40 40 30 30 20 20 10 10 Percent Percent 0 0 –10 –10 –20 –20 –30 –30 –40 –40 –50 –50 Algeria Azerbaijan Iran Iraq Turkmenistan Libya Libya Bahrain Kuwait Oman Qatar Saudi UAE Arabia GDP Non-Oil_GDP Source: IMF, World Bank staff calculations. under the Gadhafi regime inhibiting private sector to raw materials, and challenges in adopting new development. Additionally, the development of the technologies. manufacturing sector has been constrained by the The public sector is large and has been sanctions in the 1990s and the conflict since 2011, growing since the start of the conflict in 2011. In leading to shortages of spare parts, limited access 2022, public administration and public enterprises 16 LIBYA ECONOMIC MONITOR – STABILIZING GROWTH AND BOOSTING PRODUCTIVITY FIGURE 24 • Libya’s Development Indicator FIGURE 25 • Libya’s Development Indicator Scores Compared to the Upper- Scores Compared to the FCV Middle-Income Country Average Country Average (2011 to 2022) (2011 to 2022) 60% 80% 40% 60% 40% 20% 20% 0% 0% Percent –20% –20% –40% –40% –60% –60% –80% –100% –80% –120% –100% Regulatory quality: Percentile rank Control of corruption: Percentile rank Political stability and absence of violence/terrorism: Percentile rank Government effectiveness: Percentile rank Rule of law: Percentile rank Voice and accountability: Percentile rank Access to electricity (% of population) Life expectancy at birth, total (years) Access to electricity (% of population) Regulatory quality: Percentile rank Control of corruption: Percentile rank Political stability and absence of violence/terrorism: Percentile rank Government effectiveness: Percentile rank Rule of law: Percentile rank Voice and accountability: Percentile rank Access to electricity (% of population) Life expectancy at birth, total (years) Access to electricity (% of population) Source: World Development Indicators; United Nations Development Program Human Source: World Development Indicators; United Nations Development Program Human Development Index; World Bank staff estimates and calculations. Development Index; World Bank staff estimates and calculations. FIGURE 26 • Libyan Economy Heavily Dependent salaries have more than doubled compared to the on Oil 1990s, rising from an average of 12.8 percent of GDP to 28.6 percent during the period from 2011 100 to 2023. 90 80 70 Limited Diversification 60 Percent 50 Libya’s limited economic diversification is 40 reflected in its low score on the World Bank’s 30 Economic Fitness Index (EFI). This score, which 20 measures the complexity of a country’s exports, 10 underscores the significant gap between Libya and its 0 peers in terms of diversification in international trade.13 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 A worrisome trend is Libya’s 10-place drop in the EFI Oil GDP (% of GDP) Oil revenues (% Total revenues) ranking between 2011 and 2019, indicating a further Oil exports (% of Goods & services exports) deterioration in its ability to diversify the economy in recent years (Figure 31). Source: Libyan authorities, OPEC, World Bank, World Bank staff estimates and calculations. Several factors have hindered economic diversification and the development of a dynamic private sector. Decades of state-owned employed 89 percent of the workforce, up from 76 percent in 2001 (Figure 29). Public employment 15 Countries with high EFI scores typically have the is particularly concentrated in productive sectors capabilities to produce a diverse portfolio of products, such as mining, manufacturing, and communication to transition into increasingly complex industries, and and financial intermediation services (Figure 30). to achieve sustained, predictable long-term growth and Reflecting this expansion, public sector wages and competitive standing. Special Focus: Stabilizing Growth and Boosting Productivity 17 FIGURE 27 • Proportion of Value Added among FIGURE 28 • Proportion of Value Added among Sectors of Libya and its Structural Sectors of Libya and its Aspirational Peers (%) Peers (%) 70 70 60 60 50 50 Percent 40 Percent 40 30 30 20 20 10 10 0 2011–2022 2011–2022 2011–2022 2011–2022 2011–2022 1990–2000 2001–2010 1990–2000 2001–2010 1990–2000 2001–2010 1990–2000 2001–2010 1990–2000 2001–2010 0 2011–2022 2011–2022 2011–2022 2011–2022 2011–2022 1990–2000 2001–2010 1990–2000 2001–2010 1990–2000 2001–2010 1990–2000 2001–2010 1990–2000 2001–2010 Agriculture Quarring Manufacturing Construction Services Agriculture Quarring Manufacturing Construction Services & utilities & utilities Bahrain Brunei Darussalam Oman Qatar Algeria Azerbaijan Iran Iraq Turkmenistan Libya Saudi Arabia UAE Libya Source: United Nations – National Accounts Main Aggregates Database Source: United Nations – National Accounts Main Aggregates Database Note: The average sectoral proportions are calculated for the periods 1990–2000, Note: The average sectoral proportions are calculated for the periods 1990–2000, 2001–2010 and 2011–2022. 2001–2010 and 2011–2022. FIGURE 29 • Employment by Public and Private Employment by Economic Activity FIGURE 30 •  Sector and Sector in 2012 100 100 90 90 80 80 70 70 60 Percent 60 50 Percent 50 40 30 40 20 30 10 20 0 Agriculture Quarring Manufacturing Trade Transport Communication and finance Other services 10 0 2001 2010 2012 2013 2022 Public Administration Public enterprise Private sector Public Administration Public enterprises Private sector Source: Bureau of Statistics and Census Libya. Source: Bureau of Statistics and Census Libya. enterprises dominating production and distribution, infrastructure deficiencies further distorted business coupled with a lack of competition, created high environment and discouraged private investment, entry barriers for both foreign and domestic firms, with the trends worsening further since the onset of particularly in accessing skilled labor and finance. the conflict in 2011. As evidenced by the Bertelsmann Policy unpredictability, poor governance, and Transformation Index (BTI), Libya performs poorly 18 LIBYA ECONOMIC MONITOR – STABILIZING GROWTH AND BOOSTING PRODUCTIVITY FIGURE 31 • GDP Per Capita and Fitness Trajectory, 2011–2019 80,000 QAT11 70,000 GDP per capita (Constant 2015 US$) 60,000 QAT19 50,000 40,000 KWT11 BRN11 30,000 BRN19 BHR19 KWT19 SAU19 OMN11 20,000 AZE19 BHR11 AZE11 SAU11 OMN19 LBY19 10,000 DZA19 LBY11 IRQ19 IRN11 IRN19 DZA11 IRQ11 0 40 60 100 120 140 160 Economic fitness ranking (1= high, 160=low) Source: World Bank Indicators, World Bank Economic Fitness Database Note: The Economic Fitness Index measures the complexity of a country’s industries in international trade. Higher complexity is indicated by a country’s involvement in a wider range of global products, more balanced exports, and the presence of unique products that are primarily produced within that country. The data presents values for Libya and its structural and aspirational peers in 2011 and 2019 (e.g., LBY11 represents Libya’s value in 2011). LBY = Libya; AZE = Azerbaijan; DZA = Algeria; IRQ = Iraq; IRN = Iran; BHR = Bahrain; BRN = Brunei; KWT = Kuwait; OMN = Oman; QAT = Qatar; SAU = Saudi Arabia. Turkmenistan and the United Arab Emirates are not included in the WBG Economic Fitness database. compared to its structural and aspirational peers Low Productivity in areas such as anti-monopoly policies, competi- tion rules, and the protection of private enterprises Since the 1990s, Libya’s labor productivity has steadily (Figure 32 and 33). declined. Although the oil sector remains highly FIGURE 32 • Bertelsmann Transformation Index FIGURE 33 • Bertelsmann Transformation Index (BTI), 2024 (Libya vs. Structural (BTI), 2024 (Libya vs. Aspirational Peers) Peers) 9.0 10.0 8.0 9.0 8.0 7.0 7.0 6.0 BTI score 6.0 BTI score 5.0 5.0 4.0 4.0 3.0 3.0 2.0 2.0 1.0 1.0 0.0 Libya Bahrain Kuwait Oman Qatar Saudi Arabia United Arab Emirates High income Low income Lower middle income 0.0 Libya Algeria Azerbaijan Iran Iraq Turkmenistan High income Low income Lower middle income Anti-monopoly policy Market-based competition Anti-monopoly policy Market-based competition Private enterprise Private enterprise Source: BTI. Source: BTI. Note: The Bertelsmann Stiftung’s Transformation Index (BTI) analyzes and evaluates Note: The Bertelsmann Stiftung’s Transformation Index (BTI) analyzes and evaluates whether and how developing countries and countries in transition are steering social whether and how developing countries and countries in transition are steering social change toward democracy and a market economy. Higher BTI indicates greater levels change toward democracy and a market economy. Higher BTI indicates greater levels of transformation. All indicators ranged from 0 to 10, the higher the better. of transformation. All indicators ranged from 0 to 10, the higher the better. Special Focus: Stabilizing Growth and Boosting Productivity 19 FIGURE 34 • Labor Productivity by Sector FIGURE 35 • Share of Employment and Level of Productivity in Different Sectors Labor productivity by industry (5 sectores, LYD per worker) Share of employment and level of productivity in different sectors Share of people employed in the sector 1,200,000 70% 2011–2022 60% 2000–2010 1991–1999 1,000,000 50% 800,000 40% 1991–1999 2011–2022 30% 2000–2010 600,000 1991–1999 20% 2000–2010 1991–1999 400,000 10% 2000–2010 2011–2022 2000–2010 1991–1999 2011–2022 2011–2022 200,000 0 0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000 0 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 Value added per worker (LYD) Agriculture Mining, Utilities Manufacturing Agriculture Mining, Utilities Manufacturing Construction Services Services Construction FIGURE 36 • Labor Productivity of Libya and its Structural Peers (Constant 2015 USD Per Worker) Services Manufacturing Mining, quarrying, and oil and gas extraction 40 25 700 Constnat 2015 US$ per worker, 1000 Constant 2015 US$ per worker, 1000 35 600 20 30 500 25 15 400 20 10 300 15 10 200 5 5 100 0 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 Libya Algeria Iran Libya Algeria Iran Algeria Azerbaijan Turkemistan Iraq Azerbaijan Iraq Azerbaijan Libya Iran Source: World bank Indicator, ILO Database. capital-intensive and continues to exhibit the highest A decomposition of GDP growth into labor productivity, it too has experienced a decrease productivity and factors of production reveals in productivity over time (Figure 34). In addition, the that Libya’s growth has not been driven by oil sector has only absorbed roughly 5 percent of productivity gains. From 1990 to 2023, Total employment in Libya, with the vast majority of workers Factor Productivity (TFP) was a drag on GDP growth in lower-productivity sectors (Figure 35). Labor (Figure 38), in contrast to most of Libya’s structural productivity in manufacturing and services, while peers, where TFP positively contributed to growth comparable to Libya’s structural peers, has been (Figure 39). Notably, TFP only made a positive declining over the past decades and remains weaker contribution to Libya’s GDP growth from 2001 to than that of its aspirational peers (Figures 36 and 37). 2010, following the implementation of market-based 20 LIBYA ECONOMIC MONITOR – STABILIZING GROWTH AND BOOSTING PRODUCTIVITY FIGURE 37 • Labor Productivity of Libya and its Aspirational Peers (Constant 2015 USD Per Worker) Constant 2015 US$ per worker, 1000 Services Manufacturing Mining, quarrying, and oil and gas extraction Constant 2015 US$ per worker, 1000 80 300 1,800 70 1,600 250 60 1,400 50 200 1,200 1,000 40 150 800 30 100 600 20 400 10 50 200 0 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 Libya Brunei Libya Brunei Qatar United Arab Emirates Saudi Arabia Oman Saudi Arabia Oman Bahrain Brunei Darussalam United Arab Emirates Bahrain United Arab Emirates Bahrain Oman Saudi Arabia Kuwait Libya Source: World bank Indicator, ILO Database. FIGURE 38 • Libya’s Growth Attributable to TFP, Growth Decomposition of Libya’s FIGURE 39 •  Physical and Human Capital Structural Peers 6 14 1.19 4 9 13.57 Percentage points 2 Percentage point 4 1.75 1.02 0.98 2.63 0.63 0.78 0.88 0 1.36 0.75 2.46 1.72 –1 –1.45 –2 –10.97 –6 –4 –11 –6 Libya (1992–2021) Algeria (2013–2021) Azerbaijan 1994–2021) Iran (1991–2021) Iraq (2004–2021) 1990–2023 1990–2000 2001–2010 2011–2023 Physical capital Employment Human capital TFP Real GDP Source: United Nations, World Bank, CEM2.0, International Labor Organization, World Capital Stock Labor Total Factor Productivity Bank staff estimates and calculations. Note: The stock of physical capital is estimated using the perpetual inventory method Source: United Nations, World Bank, CEM2.0, International Labor Organization, World based on the assumption of a capital-to-output ratio of 1.5 in 1970 and a depreciation Bank staff estimates and calculations. rate of 5 percent per year. Human capital (ht) is a function of S (average years of Note: The stock of physical capital is estimated using the perpetual inventory method schooling in year t) and j (return on education): ht = exp(jSt). based on the assumption of a capital-to-output ratio of 1.5 in 1970 and a depreciation rate of 5 percent per year. Human capital (ht) is a function of S (average years of schooling in year t) and j (return on education): ht = exp(jSt). reforms.14 During the period of international sanc- tions period between 1990 and 2000, restrictions 16 In 2003, Libya signed an agreement with the International Monetary Fund to implement reforms liberalizing trade, on technology and equipment significantly limited reducing the size of the public sector through privatization, efficiency improvements in Libya’s productive sec- and developing the financial sector. The implementation tors. Since the 2011, TFP growth has turned negative of these reforms has boosted productivity by fostering once again, driven by political divisions, conflict and competition and private sector growth. Special Focus: Stabilizing Growth and Boosting Productivity 21 FIGURE 40 • Within-Sector Productivity Growth FIGURE 41 • Share of Employment by Sector in Versus Structural Change in Libya Libya (Annual Average Contributions to Growth in Labor Productivity, 18% Percentage Points) 16% 2 14% 1 12% 10% 0 8% –1 6% –2 4% 2% –3 0% 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018 2021 –4 1992–2000 2001–2010 2011–2022 Agriculture Mining Manufacturing Within-sector Structural change Public Transport Communication Source: ILO Database, United Nations, World Bank staff calculations. Source: ILO Database, United Nations, World Bank staff calculations. Note: Y – axis: annual average contributions to growth in labor productivity, Note: Y – axis: annual average contributions to growth in labor productivity, percentage point. percentage point. insecurity, fragmented public institutions, reduced that of services, a trend that diverges from most oil revenues, and macroeconomic instability. other economies. Today, only about 9 percent of Rival governments hampered effective economic Libya’s labor force is employed in manufacturing—a policymaking, while the split in public institutions, sector traditionally associated with high-quality, especially within the CBL undermined monetary productive jobs. policy implementation and oversight of the financial Weak investment has limited the contribu- sector and resulted in significant losses in efficiency. tion of capital deepening in driving productivity growth. This is partly due to a lack of private sector investment and a shift from public capital expendi- Constraints to Productivity Growth ture—historically a major investment driver under the Gadhafi regime to recurrent expenditures. Following Productivity growth in Libya has been hampered the lift of the UN and US sanctions in the early 2000s, by inefficient allocation of labor. In recent along with rising foreign exchange revenues, invest- decades, workers have shifted from agriculture and ment temporarily increased. However, even before the manufacturing to services, which has had a positive conflict began in 2011, Liba’s investment-to-GDP ratio impact on productivity growth, as value added per lagged behind other MENA and upper-middle-income worker in services is higher than in agriculture or countries and its structural peers (Figures 42 and 43). manufacturing (Figures 40 and 41). However, within The low and falling productivity growth in the services sector, job creation has been limited Libya is also associated with deteriorating educa- in higher-productivity areas, such as transport tion quality and outflows of talents. Prior to the and communication, while a significant portion of conflict in 2011, migrants were a major source of labor employment remains in lower-productivity sectors in Libya. According to IOM, there were an estimated like public administration. Notably, labor productivity two million foreign workers in 2011, most of whom in Libya’s manufacturing sector has now fallen below were illegal; a majority fled the country after 2011 and 22 LIBYA ECONOMIC MONITOR – STABILIZING GROWTH AND BOOSTING PRODUCTIVITY FIGURE 42 • Gross Capital Formation (% of GDP) FIGURE 43 • Gross Capital Formation, Libya and its Peers (% of GDP) 40 70 35 60 30 50 25 Percent of GDP Percent of GDP 40 20 30 15 20 10 10 5 0 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 0 1991–2023 1991–1999 2000–2010 2011–2023 Libya Algeria Azerbaijan Libya Middle East & North Africa Upper middle income Iran, Islamic Rep. Iraq Turkmenistan Source: Word Development Indicators, World Bank, World Bank staff estimates and Source: Word Development Indicators, World Bank, World Bank staff estimates and calculations. calculations. about 700,000 were estimated to remain.15 As security financially.16 Consistent with the concerning trend of conditions deteriorated since the start of the conflict low and deteriorating education quality, in 2015 the in 2011, expatriate skilled and hard-manual workers Global Competitiveness Index ranked the quality of left the country, which continued through 2022. the Libyan education system as the worst worldwide. Meanwhile, school closures, delayed rehabilitation of damaged schools, limited teacher training, reduced public investment in education, and the COVID-19 17 European Union, United Nations and the World Bank Group (2019) Supporting Peace and Stability in Libya. pandemic have all undermined access to quality A Compilation of Existing Analysis on Challenges and education. According to REACH (multiple MSNAs), Needs. deteriorating livelihood conditions have led children 18 REACH Initiative. Multi-Sectors Needs Assessment – to drop out of school to help support their households Libyan Population. Special Focus: Stabilizing Growth and Boosting Productivity 23 ANNEX 1. SELECTION OF LIBYA’S STRUCTURAL AND ASPIRATIONAL PEERS T he World Bank’s Dynamic Benchmark Model expectancy. Besides, all these peer countries are rich 2.0 is utilized to identify Libya’s structural in natural resources and serve as commodity export- peers. This tool helps identify statistical ers, much like Libya (Figure A.1.B). similarities between countries globally, allowing for The aspirational peers identified for Libya easy comparison of macroeconomic, fiscal, debt, include Brunei, Bahrain, Kuwait, Oman, Qatar, Saudi and human development outcomes with relevant Arabia, and the United Arab Emirates, with the last six counterparts. being GCC countries. These countries were selected The structural peers identified for Libya include for their similar structural characteristics as commod- Algeria, Azerbaijan, Iran, Iraq, and Turkmenistan. ity exporters, but they outperform Libya in terms of These countries were selected based on their economic level, institutional capacity, and human similarities to Libya post 2011, in terms of economic well-being (Figure A.2.A). Specially, each aspirational level, institutional capacity, and human well-being peer had the global ranking that exceeds Libya’s by (Figure A.1.A). Specifically, the absolute differences at least 20 in the following indicators: (a) real GDP per in global rankings for the following indicators, when capita, (c) scores of the Worldwide Governance Index compared to Libya’s rankings, were all less than of the World Bank, and (d) life expectancy. The aspi- 50: (a) real GDP per capita, (b) the ratio of natural rational peers also heavily rely on natural resources, resource rent to real GDP, (c) scores of the Worldwide but they have diversified their economies to a greater Governance Index of the World Bank, and (d) life extent compared to Libya (Figure A.2.B). 25 FIGURE A.1 • Comparison of Structural Peers A. Comparison of structural peers (global rankings) B. Natural resource rent of GDP among structural peers (%) 70 Real GDP per capita 0 60 50 100 50 Percent of GDP 150 40 World 200 Natural governance 250 resource 30 index rents of GDP 20 10 Life expectation 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 Libya Algeria Azerbaijan Libya Algeria Azerbaijan Iran Iraq Turkmenistan Iran Iraq Turkmenistan Source: Dynamic Benchmark database 2.0, World Bank staff estimates. Note: (a) In Figure A, the numbers by the axis represent the average ranking of indicators from 2012 to 2020 or 2021, depending on data availability. A lower ranking number indicates a higher ranking for a country. (b) In Figure B, the numbers along the axis reflect the annual estimate of the ratio of natural resource rents to GDP published in the World Development Indicator. FIGURE A.2 • Comparison of Aspirational Peers A. Comparison of aspirational peers (global ranking) B. Natural resource rent of GDP among structural peers (%) 70 Real GDP per capita 0 60 50 100 50 Percent of GDP 150 40 World 200 Natural governance 250 resource index rents of GDP 30 20 10 Life expectation 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 Libya Brunei Bahrain Kuwait Oman Libya Brunei Bahrain Kuwait Oman Qatar Saudi Arabia United Arab Emirates Qatar Saudi Arabia United Arab Emirates Source: Dynamic Benchmark database 2.0, World Bank staff estimates. Note: (a) In Figure A, the numbers by the axis represent the average ranking of indicators from 2012 to 2020 or 2021, depending on data availability. A lower ranking number indicates a higher ranking for a country. (b) In Figure B, the numbers along the axis reflect the annual estimate of the ratio of natural resource rents to GDP published in the World Development Indicator. 26 LIBYA ECONOMIC MONITOR – STABILIZING GROWTH AND BOOSTING PRODUCTIVITY 1818 H Street, NW Washington, DC 20433