- Libya’s economy is unraveling due to systemic corruption and lack of oversight, with the shadow economy accounting for 60% of economic activities.
- The Central Bank of Libya’s attempts to stabilize the economy have been undermined by unchecked political spending and fiscal chaos.
- International actors must prioritize reforming Libya’s fiscal architecture to prevent further economic collapse.
The Libyan economy, once a fragile equilibrium held together by oil revenues and conflict fatigue, is now in a state of disrepair. The Central Bank of Libya (CBL) has issued stark warnings about the country’s fiscal chaos, highlighting a government spending spree that lacks coordination or restraint. In 2024 alone, the Government of National Unity spent over 109 billion Libyan dinars, while the parallel government in the east accrued more than 49 billion in off-budget obligations. These figures lay bare the scale of state capture and fiscal mismanagement, underscoring the CBL’s limited ability to guide the economy amidst political excess.
Libya’s economic crisis is not merely a result of declining oil prices but a consequence of systemic corruption and a lack of governance. The shadow economy, accounting for approximately 60% of economic activities, thrives due to weak state institutions and the absence of effective oversight. This informal economy has become a significant challenge, as it operates outside the purview of formal economic structures, further destabilizing the nation’s financial landscape.
The CBL’s recent amendment of the official exchange rate to 5.48 LYD to the dollar, while retaining a 15% surcharge on foreign currency purchases, is a stopgap measure that reveals deeper issues. The black-market exchange rate skyrocketed to 7.8 LYD to the dollar within 48 hours of the CBL’s decree, signaling a vote of no confidence in Libya’s fiscal and monetary custodians. Institutions that once stabilized the system through budgetary checks and regulated foreign exchange have been hollowed out, leaving an economy run on improvisation and political convenience.
The architecture of corruption in Libya has evolved over the years, from the scramble for budget lines and procurement deals to the distortion of the allocation process itself. Opaque mechanisms have replaced formal revenue channels, with crude-for-fuel barter deals becoming routine. These arrangements sidestep the national budget and are brokered through informal networks, often with transnational ties and no public oversight. The National Oil Corporation’s pledge to end such swaps by March 2025 is overshadowed by more elaborate and opaque arrangements, further entrenching corruption.
Armed groups have also entrenched themselves in Libya’s energy economy, influencing operational decisions in utilities like the General Electric Company of Libya through kleptocratic leverage. Between 2022 and 2024, an estimated 1.125 million tons of diesel were illicitly exported from Benghazi’s old harbor, facilitated by inflated supply requests and threats against oversight bodies. This crony contracting erodes the firewall between national resource management and elite patronage, further destabilizing the economy.
Addressing Libya’s economic collapse requires more than fiscal prudence; it demands political realignment and reform. Libya’s economic institutions must be recentered as sites of national governance, not tools of factional financing. A credible reform strategy should include mandatory public disclosure of oil contracts, real-time publication of state spending, and a ban on off-budget arrangements. International actors must prioritize reforming Libya’s fiscal architecture to prevent further economic collapse, as stability built on corruption is not stability at all.
Libya’s current trajectory is unsustainable, and without significant reform, the next phase of the crisis will not be quiet erosion but public revolt. Recovery will require confrontation, not consensus, and must begin with reclaiming institutions designed to serve the public. Tinkering with technical levers like the exchange rate may buy time, but when used to sustain elite corruption, they provoke rather than stabilize. The international community must support a unified plan to address Libya’s fundamental needs, foster economic growth, and ensure equitable development. Inaction will only exacerbate the crisis, making reform an urgent necessity.