The central bank is burning through its foreign reserves and many government services are being cut as Libya reels under the effects of a collapse in oil revenues caused by factional fighting that threatens to tear the country apart.
With the oil price plunging and no sign of an end to hostilities, economic options are few. Experts say the bank, which is struggling to remain neutral amid the fighting, might have to devalue the currency sharply to meet the public payroll.
As the fighting has knocked out most oilfields and ports, oil exports have fallen below 300,000 barrels a day, less than one fifth of the 1.6 million barrels Libya was pumping before Muammar Gaddafi fell in 2011.
Since then, the country has been in turmoil as the rebel brigades that helped overthrow Gaddafi are now fighting each other for power and are backing two competing governments.
Neither side — the internationally-recognized government in the east and a rival outfit which seized Tripoli in summer — has prepared a budget for 2015. Both seem determined to defeat each other on the battlefield, with oil facilities, ports and steel plants their targets.
The turmoil has cut the value of Libya’s currency by 30 percent against the dollar on the black market as oil exports are the only means of funding the budget and an annual import bill of $30 billion (20 billion pounds). An employee at a state bank in Tripoli said the central bank had stopped making dollars available months ago.
Worse is to come. Husni Bey, head of one of Libya’s biggest private firms, said the central bank might have to devalue the dinar by 50 percent to offset the loss of oil revenues and pay public salaries.
Libya had a budget deficit of around $15 billion at the end of November, the bank said, before oil output fell by half.
This year the gap will balloon because oil and gas exports will fetch just $11.6 billion, said Bey, head of the HB Group, one of Libya’s biggest importers.
Salaries, wheat and petrol subsidies will alone cost 38 billion dinars (18 billion pounds), he said. Last year’s budget had assumed oil output of more than 600,000 bpd, a level now unattainable as only two ports and offshore fields have escaped the fighting.
As a result, the central bank warned last week it was depleting Libya’s foreign reserves. It did not say how much it had got through since last June, when reserves were $109 billion.
The bank has acknowledged the country’s economic problems but has spoken only of “maintaining the current value of the Libyan Dinar exchange rate” and discussing “how public finance obligations can be met in 2015”.
The Tripoli-based rival parliament said it was considering lifting fuel subsidies. “There will be a strict pursuit of austerity policies. We ask Libyans to be patient and bear the current circumstances,” said parliamentary spokesman Omar Hmeidan.
One problem is that only half of its foreign assets are held in cash or bonds in major currencies. The rest are a mix of somewhat illiquid or exotic assets — equity stakes in Italian or Bahraini banks, Chinese bonds or deposits in CFA francs, the currency of West Africa — and some investments are blocked by legal disputes.
Cutting the budget is not a viable option as two-thirds of the funds are reserved for salaries for civil servants and subsidies. Most adults are on the public payroll, a tactic Gaddafi used to buy loyalty, and the warring parties will not touch the system as their own fighters are on state salaries.
Alex Warren of advisory group Frontier, which runs The Libya Report website, said both rival parliaments would have to seek loans from Libyan banks or get support from abroad.
“There is effectively no more Libyan state,” he said. “Both seek further loans or bonds from domestic banks that they respectively control, or look for patronage from overseas,” he said.
Prime Minister Abdullah al-Thinni, who is holed up in the east, and his rival, Omar al-Hassi, running Tripoli, are trying to show they are solving the economic crisis by holding televised meetings with business leaders.
But ordinary people say the state has stopped providing basic services in some parts of the country as funding is frozen or ministries simply halt work.
In eastern Libya, state cell phone operator al-Madar has stopped working while power cuts have become part of daily life. Officials blame a lack of funds for maintenance or shortages of spare parts to fix facilities damaged by fighting.
At Benghazi’s state-run hospitals, patients must bring their own drugs or have blood tests done at private laboratories. “There is a big shortage of drugs. We don’t have a budget any more from the ministry of health,” said a spokesman for Benghazi’s biggest hospital.
Petrol has become scarce in Benghazi and other eastern cities, while people queue for bread. Imports stopped two months ago due to fighting.
Nor is there money to rebuild infrastructure such as airports or oil facilities. That will cost $38 billion, said Bey.