Libya, an Opec member, is earning billions of dollars through the sale of oil. It has recently increased production to about 1.4 million barrels a day and has reset targets to expand output further in the coming years.
However, its economy is beset with problems including the lack of a unified government to make policy decisions to spur growth, as well as high-level corruption and unregulated spending outside official channels that is not recorded by the Central Bank of Libya (CBL).
A volatile security situation and a lack of clear strategy to diversify its economy away from oil are also affecting its growth. Currently, oil and gas account for nearly 95 per cent of exports and government revenue, with no strategy in place to reduce dependence on hydrocarbons.
The government also spends heavily on subsidies and towards payment of salaries for public-sector employees. Lack of investment in launching new infrastructure projects is also hindering growth, analysts told The National.
“Libya’s economy is not looking good,” Francois Conradie, lead political economist at Oxford Economics Africa, told The National. “There is so much corruption related to the two governments and this is resulting in some serious fiscal slippage.”
Libya is being run by two governments. The UN-backed administration in Tripoli is led by Prime Minister Abdul Hamid Dbeibah, while the eastern government is supported by military commander Field Marshal Khalifa Haftar.
The country has been divided since a 2011 Nato-backed revolt that toppled and killed longtime leader Muammar Qaddafi.
Most of the major oilfields, including Sharara and El Feel, are in eastern and southern Libya, under the control of Mr Haftar, with production estimated at about one million barrels a day.
In 2025, Libya’s total revenue reached 136.9 billion Libyan dinars ($21.7 billion) including 99.6 billion dinars in oil revenue and 17.2 billion dinars through oil royalties. Its total expenditure for the period was Dh136.8 billion dinars, with 73.3 billion dinars spent on salaries, and expenditure on subsidies amounting to Dh34.5 billion dinars, according to Libya central bank's data.
“The key driver of Libya’s worsening macroeconomic backdrop is that the country operates under rival governments, lacks a unified national budget, and has large public spending in the context of [a] low oil price environment and disruptions to production,” said Antonios Tsalikis, a country risk analyst at BMI Research, part of Fitch Group.
“Libya does not have clear spending priorities, and both administrations are spending outside official channels that the Central Bank of Libya does not report.”
In 2024, unregulated spending exceeded 50 billion dinars, while official spending stood at around 120 billion dinars, “resulting in a wide deficit exceeding 20 per cent of gross domestic product based on our estimates and IMF data”, Mr Tsalikis added.
Conflict in the country following the overthrow of Mr Qaddafi’s regime has damaged infrastructure, including Tripoli International Airport, which is being rebuilt. Flights are currently operated through Mitiga airport, a former military airbase.
Around 85 per cent of Libya’s expenditure is also directed towards salaries and subsidies, with only 15 per cent allocated to investment, “which is insufficient to finance infrastructure and reconstruction projects and support non-oil economic growth”, Mr Tsalikis said.
Currency devaluation
Libya has undertaken some measures to support economic growth in the last two years, including devaluation of its currency.
In January, the CBL devalued the Libyan dinar by 14.7 per cent, setting the exchange rate at 6.3759 to the US dollar, citing the nation's political and economic turmoil. It was the currency's second such adjustment in less than a year.
The CBL also devalued the dinar by about 13.3 per cent in April last year to shore up the economy.
“Libya’s growth outlook could benefit from an improvement in the security situation which would unify the state’s budget under one government, improving oversight and controlling fiscal spending, as well as reducing risks of disruptions to oil production,” Samer Talhouk, senior economist at S&P Global Market Intelligence, said.
Libya’s oil production has been disrupted in previous years by the unrest in the country. In 2024, the National Oil Corporation declared force majeure at Sharara, its biggest oilfield, in the Murzuq Desert, in the south-west, taking it offline temporarily.
Force majeure refers to an unforeseen set of circumstances preventing a party from fulfilling a contract.
Mr Talhouk said low security risks would also allow the return of foreign investors to Libya’s hydrocarbons sector. This would improve Libya’s growth outlook and improve foreign currency generation.
“This would also allow for more targeted fiscal spending that would go into infrastructure investments and investments in the non-hydrocarbon sector,” he added.
Lower oil prices also affected its growth plans.
Last year, Brent, the global benchmark for oil, posted its steepest annual decline since 2020 on rising supply and weak demand. However, oil prices have been surging in the past few days on the possibility of US attacking Iran, a major oil producer, with Brent closing at about $70 a barrel this week.
Investment in energy
Libya, which holds Africa’s largest proven oil reserves, estimated at 48 billion barrels, is focusing on reviving its hydrocarbons sector and attracting more foreign investment.
Last week, it announced investment worth $20 billion to increase oil production at Waha oilfield, in partnership with France’s TotalEnergies and ConocoPhillips.
The deal, financed through external funding, is expected to help the country add 850,000 barrels a day of capacity, generating net revenue estimated at about $376 billion, Mr Dbeibah told the Libya Energy and Economic Summit in Tripoli last week.
It is also planning to award licences for oil companies in February for exploration and development of oil and gasfields in the country, for the first time in 17 years.
“We are very much ready for business and invite more companies to invest in Libya’s energy sector,” Oil Minister Khalifa Abdulsadek said during the US-Libya roundtable discussion at the summit.
US companies including ConocoPhillips, Halliburton and SLB are aiming to increase investment in the country. Chevron, a major US oil producer, also plans to return to Libya after leaving more than a decade ago.
