The impact of falling oil prices
Since 2011, Libya has been running a budget deficit except in 2012 when oil exports increased substantially. The recent drop in oil prices combined with limited oil exports is expected to widen the deficit even further in 2015.
The World Bank estimates that at oil prices of $65 and with the current capacity of oil exports remaining at 400,000 b/d, the 2015 budget deficit would increase to 31 percent of GDP in 2015 from 11 percent in 2014.
Financing the fiscal gap will be difficult as oil exports are not expected to recover any time soon.
The lion’s share of Libya’s budget is apportioned to energy subsidies and civil servants' wages. Salaries itself are a huge burden on the budget as a quarter of the Libyans are on the payroll and public sector wages have been increased by some 250 percent since the 2011 revolution.
Foreign reserves and Libya’s currency would be under severe pressure unless there is a major policy change in terms of lowering the wage bill and huge energy subsidies.
The Tripoli-based rival parliament has recently announced that it was considering lifting fuel subsidies which stand at 20 percent of GDP.
If implemented, this could increase government saving and reduce the fiscal gap.
(Source: World Bank)