Economic situation Extreme dependence on oil

Show image information

Workshop and vehicles of a car dealer in Libya

Strong dependence on exports of natural resources presents a long-term challenge for the north‑African state. The oil and gas sector accounts for around 60 per cent of Libya’s gross domestic product (GDP). Global market prices for these resources therefore have a direct impact on the country’s economic development and on the public budget. Political conflict has affected drilling and transportation systems time and again in recent years, and oil production even had to be temporarily suspended. Significant investment is required for rehabilitation and plant maintenance.

Economic development has therefore been inconsistent. When oil prices jumped to an all-time high in 2012, the Libyan economy grew by almost 87 per cent, according to the World Bank. In the two years that followed, however, GDP dropped by almost 20 per cent. In 2019 and 2020, armed conflict interrupted oil production, and the economy shrank by 11.2 and 23.9 per cent respectively. Progress in the peace process in 2021, however, resulted in significant economic growth (31.4 per cent). The International Monetary Fund projects negative growth in 2022.

External factors also present risks for economic development. A slowdown in the global economy – due to Russia’s attack on Ukraine or another wave of COVID-19, for example – could cause global demand for oil to drop, which would directly impact on Libya through reduced exports and economic growth and a fall in state revenue and in currency reserves.