Middle East and North Africa Region LIBYA ECONOMIC MONITOR Fall 2023 Libya Economic Monitor Fall 2023 LIBYA ECONOMIC MONITOR I Fall 2023 CONTENTS BOXES 3 ACRONYMS 4 EXECUTIVE SUMMARY 5 RECENT ECONOMIC DEVELOPMENTS 8 Conflict, Fragility and Governance 8 Growth 16 External Sector 20 Public Finances 21 RECENT SOCIAL DEVELOPMENTS 25 Poverty and Vulnerability 25 Health Services 27 Education 28 Water and Sanitation 28 Access to Electricity 29 OUTLOOK 30 3 LIBYA ECONOMIC MONITOR I Fall 2023 BOXES Box 1: The Derna Tragedy and Water Sector Governance in Libya 10 Box 2: Recent Progress Toward the Reunification of the Central Bank of Libya 13 Box 3: The economic Impacts of the storm Daniel:The RDNA assessment 17 Box 4: The importance of planning public investment Figures 23 Figure 1: Financial Costs of the Conflict on the Water Sector (2012-2019) 10 Figure 2: General Company for Water and Wastewater Budget, 2018 (US$ million) 11 Figure 3: Libya: Violence Has sharply Abated since 2011 11 Figure 4: Violent incidents were registered all over the country but highly concentrated in oil-rich areas 12 Figure 5: Libya: Most Volatile Growth Performance Worldwide 14 Figure 6: Since 2011, Oil Production remained largely dependent on Political and Security conditions 15 Figure 7: Diversification in Libya: Stagnating over Decades 15 Figure 8: Spatial Disparities Among Districts a source of political tension 15 Figure 9: Inequal Repartition of GDP Per Capita Among Districts in 2023 15 Figure 10: Oil sector: A significant increase in production but oil price decline shrank exports revenue 16 Figure 11: Oil and Gas Field Geographic Positions are far from the flooded areas 16 Figure 12: sectoral distribution of the damages and loss 17 Figure 13: regional distribution of the damages and loss 17 Figure 14: Limited GDP impact in 2023 that could increase in 2024 and 2025 18 Figure 15: The flooding affects all economic sector except for oil and mining sectors 18 Table 1: GDP loss by district relative variation vis-à-vis to the business-as-usual scenario) 18 Figure 16: Inflation has eased gradually in 2023 19 Figure 17: The ease of inflation has been perceived in all regions in 2023 19 Figure 18: Money Supply and Currency Outside the Banking System has grown in 2023 20 Figure 19: Current Account Balance and Net Official Reserves significantly increased in 2022 21 Figure 20: Lower oil prices and reduced trade balance surplus during the first seven months of 2023 21 Figure 21: During the first nine months of 2023 GNU achieved a fiscal surplus 23 Figure 22: Capital Expenditure is significant but large part of directed toward the National Oil Corporation 24 Figure 23: Diverse Impacts: How Sector-Specific Investments Shape GDP Outcomes 24 Figure 24: Poverty remains challenge mainly in the East and South of Libya 25 Figure 25: A large Proportion of Households are using Coping Strategy to cover their essential needs 26 Figure 26: Libyans are getting indebted to meet their basic needs mainly from friends 27 Figure 27: Quality of Education System in Libya one of the lowest worldwide 28 Table 2: Macro Poverty Outlook Indicators (annual percent change, unless otherwise indicated) 31 Note: The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of the World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries.  4 LIBYA ECONOMIC MONITOR I Fall 2023 ACRONYMS ACLED Armed Conflict Location & Event Data CBL Central Bank of Libya CGE Computable General Equilibrium CPI Consumer Price Index EU European Union FAO Food and Agriculture Organization FDI Foreign Direct Investment GAWR General Authority for Water Resources GCD General Company for Desalination GCWW General Company for Water and Wastewater GDP Gross Domestic Product GECOL General Electricity Company of Libya GNS Government of National Stability GNU Government of National Unity HoR House of Representatives IMF International Monetary Fund JENA Joint Education Needs Assessment LNA Libya National Army LYD Libyan Dinar MEB Minimum Expenditure Basket MMRP Man-Made River Project MSNA Multi-Sector Needs Assessment NOC National Oil Company OCHA Office for the Coordination of Humanitarian Affairs OPEC Organization of the Petroleum Exporting Countries PHC Primary Healthcare RTGS Real-time Gross Settlement RDNA Rapid Damage Needs Assessment UN United Nations UNICEF United Nations Children’s Fund UNITAR United Nations Institute for Training and Research WHO World Health Organization WLGP Western Libyan Gas Project 5 LIBYA ECONOMIC MONITOR I Fall 2023 EXECUTIVE SUMMARY I n September 2023, Libya was struck Reconstruction Fund. At the same by storm Daniel, resulting in the time, the House of Representatives breach of two dams, significant (HoR) approved US$2.1 billion (10 LYB flooding, loss of life and physical billion) for regional recovery, albeit damages in Derna and surroundings. with no clear funding mechanism. The Recent data from United Nations (UN) GNU allocated an additional month of agencies reveals nearly 4,000 fatalities, salary to civil servants in the affected 9,000 missing individuals, and 40,000 areas. displaced residents. Satellite-derived building damage analysis identifies The breaching of the two dams a total of 30,975 buildings/structures highlights the deficiencies in public with visible damages within the Derna, investment and maintenance Al Jabal Al Akhdar, Almarj and Benghazi planning and spending. Public Governorates. In addition, 346 investment spending has historically Kilometers (km) of roads have been served as an adjuster of the oil revenue damaged or are potentially damaged. fluctuations, resulting in volatile and unpredictable spending allocations. In the aftermath of the disaster, Maintenance operations are parts of Libya experienced a rare moment chapter 2 but the allocation is limited. of unity and solidarity. Civil society In 2022 more than 70 percent of actively provided initial support to Chapter 2 were allocated to sovereign devastated areas. The United Nations’ ministry and to security expenditure. Office of Coordination of Humanitarian Moreover, when official investment Assistance (OCHA) assessed the spending is relatively high (15.3 humanitarian needs at US$71.4 million. percent of Gross Domestic Production The Government of National Unity (GDP) in 2022), a significant portion (GNU) allocated US$412 million (2 LYD of funds is often directed towards billion) for the Benghazi and Derna the National Oil Company (NOC) and 6 LIBYA ECONOMIC MONITOR I Fall 2023 security-related expenses, whereas affected by the storm and flooding in only a small fraction is earmarked Derna. Oil export terminals were only for infrastructure projects. |These closed for a few days for precautionary decisions appear to be made on an ad reasons. Derna contributes a modest hoc basis, lacking a cohesive economic 1.75 percent to Libya’s GDP and the vision and a consideration of the agricultural sector, the most affected medium to long-term development sector by the flooding, contributes needs and impacts. Lastly, fiscal space less than 2 percent of GDP. As a result, for investment spending is relatively the economy is projected to grow narrow: public spending on salaries, by 14.1 percent in 2023, rebounding subsidies and transfers accounts for from a -1.2 percent contraction in 70 percent of total spending or nearly 2022, and by 4.7 percent in 2024. This 33 per cent of GDP. is assuming that oil production is not affected by potential security and Poverty and spatial disparities social disruptions. accentuate vulnerability to flooding and disasters and are key drivers Uncertainties and downside risks of Libya’s fragility. Tripoli’s GDP per persist. Key among these are risks capita is 35 percent higher than that related to conflict, to global economic of Derna and Al Butnan, the most developments, especially from the disadvantaged districts, according Chinese economy’s deceleration as this to big data analysis. Between 84 could negatively affect oil demand and and 97 percent of households in the prices. The impact of the conflict in the eastern and southern districts report Middle East could lead to an upward significant barriers to access health pressure on energy prices which would care, compared to 40 percent of the be to Libya’s export revenue advantage. western districts (OCHA). Meanwhile, However, heightened geopolitical education quality is low and declining. tensions could also undermine the The Libyan education system was country’s security and stability. considered to be the worst system among 144 countries covered by the Libya’s medium-term growth and last World Competitiveness report development challenges are major covering Libya (2015). and pressing. Key among these is to accelerate and stabilize growth: The floodings caused limited GDP per capita shrank by 54 percent disruptions to the oil sector and between 2010 and 2022. Furthermore, national economy and the Libyan Libya’s economy was among the economy is expected to rebound most volatile during the past decade in 2023-2024. Oil production was not due to the conflict, instability, 7 LIBYA ECONOMIC MONITOR I Fall 2023 fragmentation, oil export blockades, overall institutional and economic and weak economic policies. Another policy framework and capacity need challenge is to diversify the economy to be strengthened to undertake such to make growth more job-rich, more major transformation. inclusive to women and youth and less intensive in carbon. This could But agreements concerning a more be achieved by strengthening human unified and cohesive response capital and rebuilding infrastructure. could open the door to a broader Building a wide, transparent, and reconciliation and reconstruction effective cash transfer system could be process in Libya. This could be a a transformational approach to reform critical moment to respond to the public finances and the public sector demand for a more unified, effective, and rebuild trust between citizens and accountable State, as well as to and the state. Partly linked to the transform Libya’s significant resources above is the challenge to address the into greater wealth and prosperity for transparency and equitable sharing all citizens. of oil resources, including to address regional disparities to reduce risks of conflict and fragility in the interest of building a lasting peace. Lastly, the 8 LIBYA ECONOMIC MONITOR I Fall 2023 RECENT ECONOMIC DEVELOPMENTS Conflict, Fragility and Governance On September 10, 2023, storm Daniel and supplies from various cities were devastated Libya’s eastern coastal conveyed to Derna, and coordination region. Two dams burst due to the among armed groups facilitated the strong rainfall close to the coastal town initial aid delivery. The Government of Derna, one of the poorest regions in of National Unity (GNU) announced Libya, and large parts of the city and its the allocation of LYD 2 billion (US$412 surrounding areas were flooded. Nearly million), an emergency cash transfer 4,000 people have died, 9,000 people program for affected households are still missing, and 40,000 people (whose terms are to be defined), LYD remain displaced1. Satellite-derived 92 million (US$19 million) for the building damage analysis identifies reconstruction of damaged schools a total of 30,975 buildings/structures and the payment of one-month extra with visible damages and constraints salary to civil servants in the affected within the Derna, Al Jabal Al Akhdar, regions. The GNU has imported a first Almarj and Benghazi Governorates, batch of mobile homes to provide and up to 346 kilometers (km) of road temporary shelter for Libyans whose are damaged or potentially damaged homes have been destroyed by the (United Nations Institute for Training floods. The House of Representatives and Research—UNITAR). (HoR) approved US$2 billion for regional recovery, but the source of The catastrophe initially led to a funding remains unclear. moment of national solidarity and unity. Civil society, the international Over 24 countries and international community and authorities rushed to organizations are coordinating help the affected areas. Aid workers their response to assist Libyan 1 Source: https://reliefweb.int/report/libya/iom-flash-appeal-libyastorm-daniel-september-2023-june-2024 and https://reliefweb.int/report/libya/libya-floods-fact-sheet-2-fiscal-year-fy-2023 9 LIBYA ECONOMIC MONITOR I Fall 2023 authorities in addressing the crisis. The international community, The World Food Program (WFP) has through the Special Representative tripled its aid, supporting 16,000 of the Secretary-General (SRSG) individuals in 13 cities, yet WFP would of the United Nations Support need an additional US$6.5 million Mission in Libya (UNSMIL), has for 100,000 affected people (WFP, called for a unified response. Situation Report, September 22, Reconstruction of flood-affected areas 2023). The United Nations’ Office for should proceed speedily, based on a the Coordination of Humanitarian credible, independent, and objective Affairs (OCHA) has appealed for assessment of the damage and US$71.4 million in humanitarian aid. needs, professionally determined cost However, the absence of a unified estimates, and transparent contracting crisis management system in Libya and procurement processes. has hindered international efforts to respond to the flood disaster.2 The disaster illustrated some of the country’s economic governance The effectiveness of the response challenges. Years of conflicts and has quickly run into political divisions have led to inadequate divisions. Two distinct Derna public investment and maintenance of reconstruction funds, the Benghazi- infrastructure, including in the water Derna Reconstruction Fund and one sector (Box 1). reconstruction fund which is yet The catastrophe also highlighted the to be established and announced need to develop a specific climate by the HoR, have been announced change adaptation strategy for and international reconstruction fragile countries like Libya. Climate- conferences were planned by the vulnerable populations in a context of two parallel governments. The one political instability needs support for organized by the GNS took place in adaptive measures and investments, early November whereas the second particularly including early warning has not been held to date. With the systems, disaster preparedness slow and disorderly response, anger investments, and resilient building in Derna led to protests on September construction. 18, 2023. 2 As pointed out by the Libya’s Presidential Council on September 24 10 LIBYA ECONOMIC MONITOR I Fall 2023 Box 1: The Derna Tragedy and Water Sector Governance in Libya Libya is among the world’s most water-scarce countries, with an average renewable water endowment of about 100 cubic meters per person per year, representing one-tenth of the internationally adopted scarcity threshold. The country has no running rivers, lakes, or any other renewable source of freshwater with sufficient quantities to establish settled agriculture. The country has invested massively—an estimated US$41 billion—in building water infrastructure. Most of these investments occurred between 1983 and 2010 and included underground infrastructure for fossil water source utilization. Groundwater is the main source of water. It covers about 83 percent of the water supply. By contrast, surface water (including dams) covers about 5 percent. The Ministry of Water Resources and the General Authority for Water Resources (GAWR) are in charge of overall water resource management, strategic planning, and policy making. Responsibility for executing strategies, plans, and projects has been shared mainly by three state-owned national monopolies: the General Company for Water and Wastewater (GCWW), the authority for the Man-Made River Project (MMRP), and the General Company for Desalination (GCD). Each monopoly also has regional subsidiaries and operating units. The water sector suffered significant damages due to the armed conflict which has impaired its productive capacity and raised its operating costs, thus translating into a significant economic loss for the country and the population. Water infrastructure is vulnerable to targeted attacks that could easily disable its production and delivery capacity, as shown repeatedly by shutdowns caused by militia groups. In addition, a major effect of the armed conflict has been the unpredictability of fiscal expenditures because of disrupted hydrocarbon sector revenues, which has translated into cuts on capital expenditures (Figures 1and 2). The unit costs per cubic meter at market prices of the MMRP rose from US$0.21 in 2011 to US$0.26 in 2020, an increase of about 25 percent. The increase mainly reflects the MMRP’s loss of economies of scale by operating at 50 percent capacity utilization. As a result, the financial costs of the conflict on the Libyan water sector were estimated at US$2.2 billion in 20193 , with the urban population paying the highest price of the water scarcity due to the conflict, particularly as water shortages have become frequent and regular in the cities. Beyond its exceptional aspect and unprecedented level of precipitation, the Derna tragedy also reflects the state of the Libyan public sector, with cumulated degradation of public infrastructure and governance over the decades, worsened by the conflict. New investment (and proper maintenance) and better governance is acutely needed to ensure the safety and meet the basic demands of the population. 3 World Bank, “The Long Road to Inclusive Institutions in Libya,” (Washington, DC: World Bank, 2023). 11 LIBYA ECONOMIC MONITOR I Fall 2023 The collapsed dams responsible for the Derna tragedy were built from 1973 to 1977 to control floodings, irrigate agricultural lands and provide water to nearby communities. Derna has historically been known to be prone to flooding, having experienced four major floods between 1942 and 1986. Indeed, this was the reason why the two dams were constructed. Cracks in the dams had been reported, including warnings of flooding risk on Derna as early as in 1998, and as recently as in 20224. Figure 1: Financial Costs of the Conflict on the Water Sector Figure 2: General Company for Water and Wastewater Budget, (2012-2019) 2018 (US$ million) US$, million MMRP financial 250 loss Approved US$ 581million Authorized 26% 200 150 100 50 Irrigation 0 farmers Salaries and Water supply Other Capital Arrears from financial loss administrative and energy operations and expenditures previous years Urban population expenses expenditures maintenance US$ 349million financial loss expenses 15% US$ 1316million 59% Source: World Bank. Source: General Company for Water and Wastewater. Note: MMRP= Man-Made River Project. Although the overall security Figure 3: Libya: Violence Has sharply Abated since 2011. situation has improved, tensions Number of remain substantial, often over events 1800 the distribution of oil revenues. 1600 The security and political situation 1400 has improved over the course of this 1200 1000 year, as evidenced by the less than 800 200 violent incidents in 2023 (Figure 600 3). However, this progress is tenuous, 400 200 marked by sporadic and sometimes 0 intense clashes in various regions, 2021 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2022 2023 including in Tripoli in August 2023. Source: Armed Conflict Location & Event Data Project (ACLED). 4 NY Times (16/09/2023), revealed that a 1998 study commissioned by the Libyan government exposed structural issues in dams. Despite a 10-year delay, a Turkish company was eventually hired in 2008. Payment delays by the government led to the project’s commencement in 2010. 12 LIBYA ECONOMIC MONITOR I Fall 2023 Political tensions often involve threats Although some progress has of blockading oil production or export been made, there is no consensus facilities (Figure 4).5 regarding the electoral process to date. In October 2023, the HoR Figure 4: Violent incidents were registered all over the country approved the draft electoral laws and but highly concentrated in oil-rich areas. called for the creation of a new interim, unified government to oversee the electoral process. However, the High Council of State rejected the amendments and the GNU’s Prime Minister refused to step down before the presidential and legislative elections. The Central Bank of Libya’s (CBL) reunification process, if effectively implemented, will be a key step toward better transparency and management over the economy. The Those would materially affect Libya’s CBL is the central actor of the country’s economy. The 2013-2016 blockade overall resource management (Box of Libya’s oil exports, for example, is 2) and reunification of the CBL with estimated to have cost the country the easter Central Bank branch was US$100 billion (173 percent of GDP) announced on August 31, 2023. The (Ghaddar, George, and Lewis, 2016). CBL symbolizes the status of Libyan In 2020, the oil blockade was valued institutions, and its reunification will at more than US$12 billion lost (26 help improve the country’s overall percent of GDP), with spillover effects governance. It will also be a first step to the entire economy, including consistent macroeconomic, fiscal and leading to lower public investment. monetary policies for the country. 5 For example, in late June 2023, the Government of National Stability (GNS) threatened to blockade oil and gas exports from territory under its control, claiming the Tripoli administration was wasting energy revenues. At the same time, the Libya National Army (LNA) has threatened military action unless oil revenues are divided fairly. 13 LIBYA ECONOMIC MONITOR I Fall 2023 Box 2: Recent Progress Toward the Reunification of the Central Bank Given its central macroeconomic policy and asset management functions, the CBL’s reunification is key for Libya’s future. The 2015 Skhirat Agreement refers to the CBL as a “sovereign institution” (in many other countries, central banks have institutional autonomy, but they are not sovereign). The CBL is the main shareholder of the five state-owned banks that hold over 90 percent of the assets of the banking system (the rest is held by 19 commercial banks), while also serving as the regulatory agency of the banking sector. Notably, it owns the Libyan Foreign Bank, which operates as an offshore bank for the foreign exchange needs of the Libyan economy. The CBL receives most of the hydrocarbon export revenues from the National Oil Company (NOC) via the Libyan Foreign Bank. The CBL’s key functions therefore combine responsibility for Libya’s monetary policy, management of the country’s foreign exchange reserves, and supervision of the banking sector. It also holds the Treasury’s cash balances and finances government spending. Consequently, the CBL’s effective reunification is critical for the performance of the Libyan economy, the management and sharing of oil resources, and the political settlement in Libya. The CBL was split between the Tripoli branch and Al-Bayda branch at the onset of the conflict in 2014. The two branches were operating independently and providing monetary financing to their respective administrations. However, only the Tripoli branch of the CBL could provide foreign exchange through letters of credit. This situation contributed to increasing the parallel foreign exchange market rate and liquidity pressure, especially in the eastern part of the country. The liquidity pressure was attenuated by the January 2021 devaluation, leading to inflation in 2022; a narrower gap between the official and informal foreign exchange rates; and, consequently, the easing of monetary policy. The commercial banks in the eastern region of Libya were disconnected from the real-time gross settlement (RTGS) system, a system that was created in 2007 and has been able to connect over 85 percent of banking branches throughout the country to their headquarters.This contributed to increasing the liquidity pressure in the eastern region and the use of cash, which aggravated the depreciation of the Libyan Dinar in the parallel market. During the 2015-2020 period, the Al-Bayda’s CBL branch financed the east-based Interim Government by issuing bonds to commercial banks in the region, leading to a surge in domestic public debt (to LYD71 billion in 2020 or 46 percent of total domestic public debt at the time). The Eastern branch stopped issuing bonds in 2020. 14 LIBYA ECONOMIC MONITOR I Fall 2023 The process of greater cooperation and movement toward unification of the two branches gained momentum in 2021. As a step toward reunification, an audit of both branches was conducted, and a roadmap was established. The Al-Bayda CBL branch stopped printing money and issuing bonds. Salary payments for staff in the Al-Bayda branch by the Tripoli authorities resumed in 2021. The exchange rate was also unified during the devaluation in 2021, and a unified electronic settlement system was introduced in 2022. In August 2023, The CBL announced that its two branches have unified. The HoR supported the decision and designated a new vice-deputy. In October 2023, the CBL had agreed to support bank balances with LYD9 billion and to take measures that support the stability of the exchange rate and limit its rise in the parallel market. The CBL also agreed on a single organizational structure and one director to manage banking and monetary supervision in order to enhance the unification project. However, governance challenges remain since the CBL board of directors has not met for several years. In addition, currency printing by the eastern branch of CBL in 2016 amounting LYD 18 billion and the Interim Government’s debt between 2015 and 2020 remain contending issues A decade of economic growth has any disruption in oil production leads to been lost due to the conflict. significant fluctuations in the country’s GDP per capita shrank by 54 percent overall economic performance. between 2010 and 2022. The United Figure 5: Libya: Most Volatile Growth Performance Worldwide Nations estimates that the conflict could cost LYD 1,411.6 billion (US$288 40 35 billion) by 2025. 6 During the conflict, growth standart deviationbetween 20211-2021 30 the Libyan economy was also one of 25 20 the most volatile worldwide (Figure 5). 15 10 5 The instability of the country’s security 0 Myanmar Congo, Rep. Papua New Guinea Guam Ireland Colombia Turkiye Nauru Mexico Moldova Chad Namibia Nepal Costa Rica Serbia Estonia Palau Sri Lanka Thailand Lao PDR Brunei Darussalam Denmark Libya Philippines Armenia Iran, Islamic Rep. Vanuatu Bulgaria Mali Senegal Bahamas, The Hai� Puerto Rico Tanzania New Zealand Equatorial Guinea Egypt, Arab Rep. Australia Croa�a Djibou� has had a direct, adverse impact on oil production (Figure 6). With limited Source: Authors’ calculations based on Word Bank database. economic diversification (Figure 7) and a heavy dependence on hydrocarbon exports (constituting 95 percent of total exports), as well as financing government expenditures (indicated by an average fiscal break-even oil price of US$109.50), 6 The economic cost of the Libyan conflict, Economic and Social Commission for Western Asia, 15 LIBYA ECONOMIC MONITOR I Fall 2023 Figure 6: Since 2011, Oil Production remained largely Spatial disparities and the lack of dependent on Political and Security conditions. inclusion of women and youth also represent significant development 1000 bpd 1 800 Arab Spring challenges. Big data analysis shows Clashes including in Tripoli 1 600 1 400 that in 2023, the gap between the Period of intensive civil 1 200 Reunification of richest governorate, Tripoli, and the 1 000 800 600 poorest ones, Derna and al Butnan, is about 35 percent (Figures 8 and 400 200 9). Unequal distribution of revenues 0 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-19 Dec-18 Dec-21 Dec-20 Dec-22 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Jun-19 Jun-20 Jun-21 Jun-22 Jun-23 among the regions and clans created Source: U.S. Energy Information Administration (EIA) and the Organization of the Petroleum Exporting Countries (OPEC) large disparities. According to ILO, in 2021 unemployment reached around Figure 7: Diversification in Libya: Stagnating over Decades 30 percent for youth and 26.8 percent 1 for women, as compared to a national average of 19.6 percent. In addition, 0,9 0,8 women have a low participation rate 0,7 0,6 (34.4 percent compared to 60.4 percent 0,5 0,4 for males) and even when employed, 0,3 0,2 0,1 0 1995 2000 2005 2010 2015 2020 they earn nearly three times less than working men. Women also have Algeria Americas Bahrain Libya Morocco Oman Qatar Saudi Arabia lower levels of political, civil society Tunisia United Arab Emirates Source: UNCTAD Note: The diversification index signals whether the structure and community engagement and of exports by product of a given country differs from the structure of the products of the world. The diversification participation. As such, they resort more index is computed by measuring the absolute deviation of the country share from the world’s structure. The diversification to family and community to resolve index ranges from 0 to 1. It reveals the extent of the differences between the structure of trade of the country or country group disputes (Economic and social impact and the world average. An index value closer to 1 indicates a bigger difference from the world average. It is constructed as of the conflict on Libyan women, 2020, the inverse of a Herfindahl index, using disaggregated exports at 4 digits. UN-WONEN) Figure 8: Spatial Disparities Among Districts a source of Figure 9: Spatial Disparities Among Districts a source of political tension political tension US$ 12000 10000 8000 6000 4000 2000 0 Ghat Benghazi Al Marj Tripoli Al Wahat Surt Misratah Murzuq Al Butnan Sabha Nalut Derna Az Zawiyah Al Marqab Wadi al Hayat Al Jufrah Al Jifarah Al Kufrah Al Jabal al Gharbi An Nuqat al Khams Wadi ash Sha�' Al Jabal al Akhdar Source: AI World Bank estimation based on RDNA methodology Source: AI estimates from VIIRS Nighttime Lights and Facebook Relative Wealth Index 16 LIBYA ECONOMIC MONITOR I Fall 2023 Growth Oil production grew by 12 percent Figure 10: Oil and Gas Field Geographic Positions are during the first 9 months of 2023, far from the flooded areas. helped by the improving security situation and exemption from Organization of the Petroleum Exporting Countries (OPEC) output cuts. Oil production reached an average of 1.191 million barrels per day (bpd) during the first nine months of 2023 as compared to 1.057 million bpd in 2022 (Figure 10). However, it Source: S&P Global Platts remains below its pre-conflict level of 1.71 million bpd in 2010. In 2023, the economy is expected to grow by 14.1 percent. The recent Authorities are trying to restore storm and flooding in Derna is and increase production capacity. expected to have a limited impact Responding to the authorities’ call, on the overall economic growth three of the major oil firms which (Box 3), as oil production remained had suspended their activities due unaffected (Figure 11). Although oil to security reasons resumed their export terminals temporarily closed production in August 2023. Moreover, for precautionary reasons, they in 2022, the GNU transferred to the resumed operations shortly thereafter. National Oil Company (NOC) about Furthermore, Derna contributes a mere US$7 billion, mainly for investment 1.75 percent to Libya’s GDP, and the spending. This is expected to boost agricultural sector, the most affected production to 2 million bpd over the sector by the flooding, constitutes less next 3 to 5 years. than 2 percent of the GDP Figure 10: Oil sector: A significant increase in production but oil price decline shrank exports revenue. Thousand, bbl/day USD, billion 1600 4,5 1400 4,0 3,5 1200 3,0 1000 2,5 800 2,0 600 1,5 400 1,0 200 0,5 0 0,0 43647 43739 44013 44105 44378 44490 44763 44855 45128 45220 43466 43556 43831 43922 44197 44287 44582 44672 44947 45037 Crude oil production Exports (fob) Sources: OPEC, and International Monetary Fund (IMF). 17 LIBYA ECONOMIC MONITOR I Fall 2023 Box 3: The economic Impacts of the storm Daniel: The RDNA assessment According to Rapid Damage Needs Assessment (RDNA) estimates, storm damages totaled $1.65 billion USD, around 3.6% of the nation’s GDP in 2022. The housing sector was hit the hardest, enduring 25.8% of the damages, followed by the environment at 25%. Water and sanitation, cultural and heritage sites, and transport also suffered significantly, accounting for 9.5%, 10.5%, and 9.7%, respectively (Figure 12). The impact varied across regions, with Al Bayda, Benghazi, Derna, Shahaat, and Soussa collectively experiencing 85% of the recorded damages and losses, emerging as the hardest-hit areas (Figure 13). Figure 12: sectoral distribution of the damages and Figure 13: Oil and Gas Field Geographic Positions are loss far from the flooded areas. Digital Finance and Agriculture ; Social Wardam Umar Al Toukara Umm Arazam,, Other, 0,39000762 Al Abraq , 0,30621596 Al Abyar, Development Markets; 4,598522342 Protection Mukhtar, 1,523660487 , 1,021103843 2,26659235 0,679994779 and ICT; 0,177677414 and Jobs; Suloug , 0,224753568 1,150347436 0,02844869 0,02261007 5 Environment; Al Marj, 3,724470961 Housing; Soussa, 13,1650489 Al Bayda, 16,54363462 25,01845033 Al Qayqab, 25,81275044 Sahel Al 0,277000187 Cultural Jabal, Heritage; 0,856902256 Al Qubah, 0,671772437 Shahaat, 10,42030612 10,45654469 Ra’s Al Hilal, 0,347487029 Governance; Education; Benghazi 20,39780244 0,093404685 3,551303255 Medouar Al Zetoun, 0,358910794 Municipal Services; Jardas Al Abid, Health; 0,707944503 Water and 0,27446565 Derna, 24,89276007 Transport; 5,847310645 9,691683783 Sanitation; Gemienis, 0,506762498 Energy; 9,473334715 4,52001444 Source: World Bank estimation based on RDNA methodology The catastrophe will not have significant macroeconomic impact and will marginally affect the initial growth estimation. A Computable General Equilibrium (CGE) suggests a potential 0.07% GDP loss in 2023 due to damaged and lost capital. Meanwhile, without adequate reconstruction efforts, this loss could escalate, potentially representing 0.23% and 0.22% of GDP in 2024 and 2025, respectively (Figure 14). The impact of the catastrophe extends across various sectors, excluding oil and mining. Initially, the non-oil and mining sectors’ value- added might decrease by less than 1%. However, without effective reconstruction efforts, the repercussions could be more significant in 2024 and 2025. This could potentially lead to a 3.5% decline in the transport sector, a 2% downturn in water and heath sector (Figure 15). 18 LIBYA ECONOMIC MONITOR I Fall 2023 Figure 14: Limited GDP impact in 2023 that could Figure 15: The flooding affects all economic sector increase in 2024 and 2025 except for oil and mining sectors 71 0 0 69 -0,05 67 Culture and Heritage Health Education -0,07 rest of public sector 65 -0,1 Finance Transport Rest of service 63 Water Energy 61 -0,15 Chemistry Rest of industry Food and Tobacco Mining 59 Oil -0,2 Agriculture 57 -4 -3,5 -3 -2,5 -2 -1,5 -1 -0,5 0 -0,21 -0,22 2025 2024 2023 55 -0,25 2022 2023 2024 2025 relative variation Without the Flooding After the flooding Source: Author’s calculation using CGE model. Distributing the GDP loss based on the damage in each district relative to their pre-crisis GDP shows varying impacts. Al Jabal al Akhdar faces significant setbacks, expecting a -0.8% GDP loss in 2023, worsening to -2.5% in 2024 and 2025. Al Marj forecasts comparatively smaller but notable declines, projecting -0.3% in 2023 and -0.9% in both 2024 and 2025. Derna experiences severe economic strain, with the most substantial GDP losses: -1.1% in 2023, followed by -3.7% in both 2024 and 2025. Meanwhile, Benghazi anticipates relatively minor reductions, with -0.1% in 2023 and -0.3% in 2024 and 2025. Table 1: GDP loss by district (relative variation vis-à-vis to the business-as-usual scenario) 2023 2024 2025 Al Jabal al Akhdar -0.8 -2.5 -2.5 Al Marj -0.3 -0.9 -0.9 Benghazi -0.1 -0.3 -0.3 Derna -1.1 -3.7 -3.7 Source: World Bank estimation based on RDNA methodology and CGE model 19 LIBYA ECONOMIC MONITOR I Fall 2023 Inflation has eased gradually Figure 16: Inflation has eased gradually in 2023 according to official statistics in Tripoli, reaching 2.1 percent by August y-o-y change, percent 8 2023 year-on-year (yoy), down from 6 its peak at 5.7 percent in March 2022 4 2 (Figure 16). In 2022, inflation was 0 -2 driven by rising food prices, insecurity, -4 -6 and devaluation impacts. However, a Inflation rate Food and Beverage -8 relative improvement in security and -10 43466 43556 43647 43739 43831 43922 44013 44105 44197 44287 44378 44470 44562 44652 44743 44835 44927 45017 45108 the monetary reunification process has contributed to this easing. Price Source: Bureau of Statistics and Census (BSC), and CBL deceleration has been observed across Note: Consumer Price Index (CPI) was measured in Tripoli only. all regions. The Minimum Expenditure Basket (MEB) variation, as measured Figure 17: Inflation has eased gradually in 2023 by the REACH7 initiative, indicates y-o-y change, narrower price gaps between regions percent 50 (Figure 17). 40 30 20 The flooding could raise food and 10 0 commodity prices in the areas of -10 -20 West Al Jabal Al Akhdar and Derna due East -30 South -40 to disrupted supply chains caused by 43845 43936 44027 44119 44211 44301 44392 44484 44576 44666 44757 44849 44941 45031 infrastructure damage. According to the UN, as of October 10, prices have Source: REACH Initiative and World Bank staff calculations. mostly stabilized at a higher level in the Note: Prices are measured by the Median Cost of the MEB. The MEB is the minimum culturally adjusted monthly essentials affected areas, except for eggs. About for a Libyan household of 5.2 people, including 18 food items, five non-food items, and cooking fuel. It represents the 50 percent of households continue monetary threshold required to meet these essential needs. It to report issues with accessibility, has been tracked since January 2018. affordability and availability of essential goods. Disruption in local markets The CBL reunification process and economic activities was reported. has contributed to an easing of Banking services are accessible again, the liquidity shortage. The Libyan but the maximum cash withdrawal economy has experienced a structural is limited to an average amount of liquidity crisis since the economic 3,000 LYD (approximately US$610) per crisis of 2014. It was caused by general month. mistrust of the banking system and a shortage of foreign currency, as the oil production was reduced due to 7 REACH is a joint initiative of IMPACT Initiatives, ACTED and the United Nations Operational Satellite Applications Pro- gramme (UNOSAT). 20 LIBYA ECONOMIC MONITOR I Fall 2023 renewed conflict. The CBL restricted percent. All these factors, in addition to the distribution of cash in the country, the devaluation, and relative security meaning that Libyan bank account contributed to the liquidity growth holders could only access a fraction since the fourth quarter of 2022. In of their own salaries. At the same this context, M2 grew by 15.6 percent time, access to foreign currency at the and the currency outside of the official exchange rate was severely banking system grew by 21 percent by limited, which then widened the rates September 2023 (yoy) (Figure 18). between the official exchange rate and the parallel market rate. As part Distrust in the banking sector is of the reunification process and to high with cash outside the banking ease the liquidity shortage, the CBL in system accounts for about 32 Tripoli has been providing liquidity to percent of the liquidity during the the commercial banks in the eastern first nine months of 2023. However, region against their collateral held in credit remains low, at about 13 the eastern CBL branch. Similarly, the percent of 2022 GDP, reflecting Libya’s devaluation helped to ease the cash underdeveloped financial sector. collateral requirement for issuing the CBL letters of credit from 100 to 30 External Sector The current account surplus is Figure 18: Money Supply and Currency Outside the Banking narrowing in 2023 due to declining System has grown in 2023. oil and gas prices. The current account surplus reached 26.2 percent of GDP 120 100 in 2022, up from 13.3 percent in 2021 Money Growth (percentage change, yoy) Money supply (M2) 80 Currency outside the banks and -9.5 percent in 2020 (Figure 19). 60 40 However, during the first seven months 20 of 2023, export revenues dropped by 21 0 -20 percent compared to the same period -40 a year earlier. This was mainly due to lower oil prices (Figure 20). Imports and Tripoli. services in the Eastern public Source: CBL also decreased by 14 percent for the region. Libya has a comfortable foreign same period. Earlier in 2023, the GNS exchange reserve position, with US$82 announced the seizure of part of oil billion as of the end of 2022, which is revenues, which exceed LYD130 billion almost twice its GDP and equivalent to (US$26.6 billion), claiming to prevent 58 months of imports. corruption and secure wages 21 LIBYA ECONOMIC MONITOR I Fall 2023 Libyan authorities are increasing Project (WLGP), which reached peak gas sector investments to tap into production in 2015. Libya’s gas exports Europe’s shifting demand. Although were US$1.9 billion (about 4.4 percent Libya currently exports around 7 of GDP) in 2021. The new projects aim million cubic meters of gas per day to to increase gas production and export the European Union (EU) (the average capacity by developing new fields and for 2023), it accounts for less than 1.2 optimizing existing ones. percent of EU gas imports (as of August 2023). Libya plans to double Figure 20: Lower oil prices and reduced trade balance surplus during the first seven months of 2023. gas production to meet domestic needs and expand EU exports. In US$, billion 5 January 2023, the NOC signed an Trade balance Exports (fob) Imports (cif) 4 US$8 billion agreement with an Italian 3 company to develop two offshore gas 2 fields. In August 2023, another Italian 1 firm secured a €910 million (US$961 0 -1 million) contract to upgrade an existing 43661 44027 44392 44576 44757 44941 45122 43480 43845 44211 offshore gas field. These projects Source: Direction of Trade Statistics (DOTS), IMF data. complement the Western Libyan Gas Figure 19: Current Account Balance and Net Official Reserves significantly increased in 2022. US$ billion 140 120 100 80 60 40 20 0 -20 -40 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Current Account Net official reserves Source: CBL data. Public Finances The competing authorities in the and has been spent based on the East and in the West have separate 1/12 rule of previous fiscal year’s annual budgets. Since 2021, the appropriations. The GNS, on the other GNU’s budget has not been approved hand, has an approved 2022 and by the HoR, despite being fully funded, 2023 budget, but it lacks access to 22 LIBYA ECONOMIC MONITOR I Fall 2023 government accounts at the CBL. The by 9.8 percent. The increase in capital GNU covers the salaries of public sector expenditure is mainly driven by extra employees, including those working in budgetary allocations to both NOC the GNS-controlled areas but has no and GECOL representing 78 percent authority for public investment under of reported capital spending. This is the Berlin Accord that created it as a a policy that could continue to have a transitional governance body most of long-term impact on the development these expenditures are reactive, often of the country (Box 4). Meanwhile, if due to political pressures. Long-term the different announced expenditures government financing, both national materialize, the Derna flooding will and municipal, to support such needs have a significant fiscal impact. It as infrastructure development and could reduce the surplus and increase maintenance, have largely been on capital expenditures for the response hold Libya Financial Sector Review and recovery efforts. (2020)). The GNU also provides highly subsidized fuel at a uniform price Official public debt in 2022 amounted throughout the country. to 70.4 percent of GDP. Public debt is mostly domestic whereas the The Central Bank has been financing country’s primary revenue source the deficit of the GNU, if that is dollar-denominated oil revenues materialized, through the provision (currently amounting to about 60 of advances. The CBL has provided percent of GDP but these are highly advances equivalent to about one- volatile—Figure 21). In addition, in fifth of estimated budget revenues, 2022 the government also owed 90.5 with the proviso that these have to percent of GDP to the CBL as part of be repaid at the end of the fiscal year. advances that CBL extended to the In recent years, the government has GNU. This is equivalent to one-fifth resorted to monetary financing to of estimated budget revenues, to be cover deficits when oil revenues fall repaid at the end of the fiscal year. short of expenditures. Meanwhile, according to the IMF 2023 review, the government indebtment The GNU achieved a fiscal surplus to the CBL is not a standard debt as it equivalent to 1.4 percent of GDP is denominated in domestic currency, during the first nine months of 2023 carries no interest, has no repayment (Figure 17). Compared to the first nine schedule, and can be forgiven using months of 2022, capital spending and administrative procedures without any wages and salaries grew at 16.5 and economic implications. 32.4 percent respectively, faster than hydrocarbon revenues which increased 23 LIBYA ECONOMIC MONITOR I Fall 2023 Figure 21: During the first nine months of 2023 GNU achieved a fiscal surplus Percent of GDP 250 200 150 100 50 0 -50 -100 2015 2016 2017 2018 2019 2020 2021 2022 2023-9 mo. Budget balance Non-oil budget balance Public debt stok Sources: Ministry of Finance, CBL. Box 4: The Importance of Planning Public Investment According to the assessment by the International Crisis Group, the Derna tragedy was caused by underinvestment and a lack of maintenance in essential infrastructure. Capital expenditures served as a de facto adjuster to oil revenue variations.. As such, public investment in Libya in general and the area in particular is highly volatile and difficult to plan. Indeed, no country’s long-term development plan can exist under such a conflict situation. Over the course of the past three years, there has been a notable absence of a development budget, which typically serves as the funding source for critical infrastructure initiatives. This void has resulted in a lack of allocation for long-term projects that are instrumental to bolstering the region’s development. It is important to note that neither of the two governing bodies holds a recognized legitimacy that would enable them to embark on substantial, forward-looking plans, thus further exacerbating the dearth of attention to infrastructure development. Both governments have officially reported expenditures under Chapter III of the budget or for public investment (Figure 22). However, a closer examination reveals that a significant portion of these funds has been directed toward the National Oil Company and security- related expenses. Conversely, only a nominal fraction has been earmarked for infrastructure projects, and these decisions appear to be made on an ad hoc basis using measures with little or no oversight (IMF 2023), thus lacking a cohesive economic vision and a consideration of the medium- to long-term implications. The allocation of public investment funds can yield divergent impacts when directed toward one sector over another. These impacts have discernible consequences in terms of economic growth, unemployment rates, and inflation levels. As an illustration, a simple Computable General Equilibrium (CGE) modelling exercise shows that a public investment allocation equivalent to 1 percent of GDP could lead to a GDP increase equivalent to 4 percent if it is allocated to public service utilities (Figure 23). However, it would lead to a 1.35 GDP contraction if allocated to the construction sector, as a result of low rate of return of this sector and the crowding out effect generated by this public investment. Therefore, a more strategic and forward-looking approach to infrastructure investment is imperative to addressing the underlying needs in Derna, including fostering sustainable development in the region. 24 LIBYA ECONOMIC MONITOR I Fall 2023 Figure 22: Capital Expenditure (as a percentage of GDP) is Figure 23: Diverse Impacts: How Sector-Specific significant but directed toward the National Oil Corporation Investments Shape GDP Outcomes Percent of GDP Impact of a One Percent of GDP between 2023 and 2030 investment on Real GDP unclear- rephrase (average 2023-2030) 18 NOC non-NOC Agriculture 16 5 14 Public u�li�es 4 Oil and GAS 3 12 2 1 10 Tourism Mining 0 8 -1 -2 6 4 Construc�on Food and Tobacco 2 0 Rest of Rest of services 2019 2020 2021 2022 2023-9 mo. Manufacturers Machinery . Source: Ministry of Finance. Source: CGE simulation. 25 LIBYA ECONOMIC MONITOR I Fall 2023 RECENT SOCIAL DEVELOPMENTS Storm Daniel worsened an already country. The flooding took place fragile social situation. Over a decade in one of the poorest regions and of conflict and political instability has accentuated vulnerability across heightened multidimensional poverty, multiple dimensions. exacerbated spatial disparities, and increased social vulnerability in the Figure 24: Poverty remains high mainly in the East and South of Libya Percent 100 Under $2.15 Under $3.65 80 60 40 20 0 Source: REACH Initiative (2023). Poverty and Vulnerability Poverty remains a significant concern with less than US$3.65 per capita per in Libya and particularly in areas day. Also, 13 percent of households impacted by the flooding. According to have incomes below the cost of the REACH 2023, 7 percent of households Minimum Expenditure Basket (MEB) in the 15 municipalities covered live in their municipalities. In Derna, below the international poverty line before the storm, the poverty rate had of US$2.15, and 29 percent are living reached 24 percent (Figure 24). 26 LIBYA ECONOMIC MONITOR I Fall 2023 The poverty rate will have increased Figure 25: : A large Proportion of Households are using after Storm Daniel. Private crisis or emergency livelihood coping strategy to cover their essential needs. employees and the self-employed, representing around 5 percent of the Derna 15 14 52 19 population, have lost their jobs and Benghazi 7 8 64 20 incomes, especially in the agricultural sector (which represents 10 percent Albayda 16 4 64 16 of economic activity in Derna and 21 East 10 9 57 23 percent in Al Bayda). Sample 26 17 44 13 0% 20% 40% 60% 80% 100% None Stress Crisis Emergency The number of people in need has Note: The Livelihood Coping Strategy Index measures surged from 359,000 in January 2023 strategies a household employs when it cannot meet basic needs due to inadequate income in times of stress; the index to 884,000 by September 30, 2023. indicates the coping capacity of the household. The index is the Among them, 250,000 require urgent sum of the severity level of each individual coping mechanism (how negative its impact is on the household members). A humanitarian assistance, primarily higher score indicates extensive use of negative livelihood coping strategies. for safe drinking water, psychological support, healthcare, medicine, high Source: REACH (2023). food prices, disrupted banking services, displacement, and damaged homes. However, due to the disaster, these Even before the crisis, many Libyans mechanisms are no longer available, struggled to meet basic needs, with leading to increased debt of 46 percent of surveyed households households. In the 15 municipalities assessed by REACH (2023), 35 percent affected, especially in health (29 of households reported taking on debt percent) and food (16 percent). Thus, from friends, family, or employers these households were unable to meet (Figure 26), primarily to cover their their basic needs in 2022, according to healthcare expenses (46 percent), food the MSNA. expenses (40 percent), and other basic needs (47 percent). The percentage In the absence of modern social of households with debt is higher in safety-nets, households are the East, particularly in Albayda and employing various coping strategies. Derna, where 51 and 50 percent of households, respectively, incurred These involve taking on extra jobs, debt in the three months preceding depleting savings, borrowing money, the data collection (REACH, 2022). selling assets, and cutting spending on essential non-food items and healthcare. In Benghazi and Derna, 13 and 9 percent of households, respectively, sold property (Figure 25) in 2023 to cover their current financial needs. 27 LIBYA ECONOMIC MONITOR I Fall 2023 Figure 26: Libyans are getting indebted to meet their basic Daniel, could put some strain in needs mainly from friends and family affected areas. According to the Food and Agriculture Organization (FAO), although a small percentage Percent 50 Official lender of flooded land is cropland, the 45 Vendor Family/Friends 40 Employer impact on agricultural activities could 35 30 25 be significant, given the potential damage to irrigation networks and the 20 15 availability of irrigation water (OCHA 10 5 0 Sample East Albayda Benghazi Derna 2023). Furthermore, the massive run- Source: REACH (2023). off of sediments, debris and pollutants reaching several kilometers off the coast will have an adverse impact on The Libyan population is relatively the fishing sector. food secure. However, the storm, Health Services Fragmentation and a lack of areas, including vital regions such as maintenance has hindered access to Derna, are now non-operational or quality health services. According to partially operational. According to an the World Health Organization (WHO), assessment conducted by the United 51 percent of health facilities are Nations Children’s Fund (UNICEF), partially functioning or not functioning. the Taknis Vaccination Center, the A lack of finance, equipment, and staff Almkhaili Rural Hospital, and the are the main reasons for the sector’s Albayada Rural Hospital were critically partial functionality. According to impacted, with damage to all their REACH’s MSNA, households that equipment, rendering them out of needed healthcare could not access it service. The impact was particularly due to poor quality (43 percent); a lack evident in the primary PHC facilities of medicines (43 percent); and high and vaccination centers, where the cold cost (32 percent). chain equipment was either flooded or without electricity for more than Storm Daniel impacted health three days. This resulted in damage to facilities in the eastern region. vaccines, which could amplify the risk According to the WHO’s assessment, of occurrence of vaccine-preventable 6.1 percent of primary healthcare diseases. According to the WHO, 111 (PHC) facilities and 12 percent of health workers lost their lives because hospitals were non-functional. Over of the floods. half of the health facilities in affected 28 LIBYA ECONOMIC MONITOR I Fall 2023 Education The Libyan education system is which have sustained severe damage, weak. It was the least performing with 4 among them destroyed. Also, system among 144 countries covered 73 schools were partially damaged by World Competitiveness Index in or rendered unusable due to mud 2015 (Figure 27). According to the Joint and debris. Many schools have been Education Needs Assessment (JENA) repurposed to shelter internally of 2022, essential equipment, such as displaced persons. The high levels of computers, seats, laboratories, and displacement will have significant long- charts, and delays in the supply of term effects on the quality of teaching schoolbooks and textbooks are key and learning in schools, as classes face factors adversely affecting the quality even more overcrowding. The GNU of education. Also, teachers do not has allocated LYD 92 million (US$19 receive any additional training and lack million) to rehabilitate and reopen the continuous professional development 117 schools. opportunities. Figure 27: Quality of Education System in Libya one of the The current Libyan curriculum is lowest worldwide outdated, lacking coherence and clarity in lessons and textbooks. 160 138 142 148 144 140 124 121 128 Ranking of Ranking of the Libyan 120 The storm, Daniel, put an additional Educa�on System 100 burden on Libyans in terms of 80 60 accessing education services in 40 the affected areas. According to the 20 0 Ministry of Education, in the affected 2008 2009 2010 2011 2012 2013 2014 2015 municipalities, 117 of the 447 schools were affected by the floods, 44 of Source: Global Competitiveness Index. Water and Sanitation Insufficient investment and for a week, and 13 percent had indiscriminate attacks on water access only rarely. Many households infrastructure have disrupted the lacked sufficient water for cleaning provision of safe drinking water. (14 percent), personal hygiene (14 This led to temporary shutdowns of percent), or drinking (12 percent). multiple water stations, impacting Instead, they relied on bottled water access for households. According (58 percent) and the public network to the REACH initiative, 9 percent of (31 percent) as their main sources of households could not access water drinking water. In the western region, 29 LIBYA ECONOMIC MONITOR I Fall 2023 all surveyed households relied on half of its 18 boreholes were rendered bottled water, whereas in the south, 9 inoperative, and extensive damage to percent used public taps or standpipes the sewage system raised concerns for their drinking water needs. about groundwater contamination and waterborne diseases. Al Marj Storm-induced damage to water and faced sewer flooding, and Soussa sanitation infrastructure poses grave experienced sewage blockages environmental and health risks. The due to sediment. Additionally, Al region’s infrastructure was already Bayda’s sewage treatment plant was strained, with Derna’s desalination overwhelmed by floodwater, resulting plant non-operational even before in a mix of sewage and floodwater, thus the disaster. Destruction affected causing damage to critical equipment water networks, sewage systems, and facilities. and boreholes serving multiple cities. UNICEF (2023) reports that in Derna, Access to Electricity Armed conflict and a lack of public shortages. The duration of power funding have led to severe damage outages is more important in the to the electricity infrastructure, western region, where it reached 8.6 including disrupted electricity hours per day. The General Electricity supply. The surveyed Libyan Company of Libya (GECOL) is actively households who accessed electricity working on developing and diversifying mainly from the general grid reported its capacity for electricity production. 6.3 hours of power blackouts per For the first time in a decade, Libya day during the week preceding data registered a time period without a collection (REACH 2022). This was power outage during the summer of due to higher demand and capacity 2023.   30 LIBYA ECONOMIC MONITOR I Fall 2023 OUTLOOK In 2023, the economy is expected to is projected to decline in line with oil grow by 14.1 percent, a significant prices and a possible increase in public rebound from the previous year’s investment. negative GDP growth of -1.2 percent. Strong hydrocarbon production pulls Uncertainties and downside risks industrial activity (+11.3 percent). On persist, including the August clashes in the demand side, growth is driven by a Tripoli and potential global economic 10 percent increase in the government impacts, especially from the Chinese wage bill, which will stimulate services economy’s deceleration, affecting the growth by 18.7 percent. oil market. The impacts of the conflict in the Middle-East could also increase The economy is expected to grow energy prices, thereby benefitting at a steady pace of 4.7 percent in Libya. However, heightened geopolitical 2024 and 4.8 percent in 2025 (Table tensions could also undermine the 2). These projections assume that country’s security and stability. the conflict, security conditions, and oil production all remain stable. In These projections do not take addition, the still relatively high oil account of the impacts of the recent prices and the possible advanced Derna flooding. Given preliminary reunification of the CBL are expected information, the catastrophe is to boost growth. Inflation is projected expected to have significant social to continue to be subdued, thanks impacts. It caused extensive damage to the unified exchange rate and to infrastructure, impacting the supply adequate liquidity growth. The current of essential goods and services, account surplus is projected to decline potentially leading to increased from 21 percent of GDP in 2022 to disease incidence and food insecurity. 7.8 and 3.9 percent of GDP in 2023 However, hydrocarbon production was and 2024, respectively. This is due to not affected, as oil fields are far from the lower oil prices and strong imports affected areas. Also, exporting ports driven by domestic demand and oil- reopened after a brief closure. Although related foreign direct investment (FDI). the agricultural sector accounts for a Over 2024-2025, the fiscal surplus small part of the National GDP, it has a 31 LIBYA ECONOMIC MONITOR I Fall 2023 relatively important weight in affected If effectively managed, the areas (Derna and Al Bayda). The loss reconstruction of Deran and other of arable land and water resources is affected areas could catalyze expected to affect the local population, a transformative development and potentially migrants and refugees. phase in Libya. It may bolster The government quickly announced economic growth, entice local and an allocation of LYD 2 billion (US$447 global investors, boost private sector million) for reconstruction. In addition, involvement, enhance public services an emergency cash transfer program in impoverished regions, diminish is under consideration. regional inequalities, and serve as a model for nationwide reconstruction efforts. Table 2: Macro Poverty Outlook Indicators (annual percent change, unless otherwise indicated) Variable 2018 2019 2020 2021 2022e 2023e 2024f 2025f Real GDP Growth, at constant factor 8.2 -11.9 -29.8 31.4 -1.2 14.1 4.7 4.8 prices Agriculture 4.3 20.2 -30.1 31.4 10.0 6.8 5.9 6.7 Industry 19.5 -10.6 -34.6 45.0 -9.9 11.3 0.6 0.6 Services -6.8 -15.1 -21.1 11.1 15.0 18.7 10.5 10.2 Inflation (Consumer Price Index) 13.2 -2.2 1.4 2.8 4.6 2.4 2.4 2.4 Current Account Balance (percent 15.8 7.4 -9.8 13.9 21.0 7.8 3.6 3.9 oftGDP) Fiscal Balance- (percent of GDP) -4.8 1.2 -35.2 11.0 2.5 14.4 7.2 -1.5 Revenues (percent of GDP) 42.2 59.2 35.4 58.8 59.0 43.9 40.7 37.4 Debt (percent of GDP) 88.3 106.7 238.2 87.0 70.4 54.7 51.2 55.0 Primary Balance (percentof GDP) -4.8 1.2 -35.2 11.0 2.5 14.4 7.2 -1.5 GHG emissions growth (mtCO2e) 8.3 4.2 -11.0 14.4 -4.2 0.8 2.6 2.4 Energy-related GHG emissions 38.7 36.7 28.0 36.0 31.8 31.2 32.4 33.3 (percent of total) GDP nominal in US$ (millions) 76,684 69,25 48,63 38,927 45,813 50,375 51,495 54,365 2 1 Sources: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Note: e =estimate ; f = forecast ; GHG= greenhouse gases; mtCO2e= metric tons of carbon dioxide equivalent . Source: Sources: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Note: e =estimate; f = forecast; GHG= greenhouse gases; mtCO2e= metric tons of carbon dioxide equivalent. 32 LIBYA ECONOMIC MONITOR I Fall 2023 1818 H Street, NW Washington, DC 20433 33