27 November 2024: Economic challenges persist amid discussions around the fuel bill, oil revenues, and state spending
This week we look at economic challenges including meetings to address fuel smuggling, as well as renewed violence in Zawiyya and efforts to expand private sector involvement in the oil sector.
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Economic challenges persist amid discussions around the fuel bill, oil revenues, and state spending
Incident: There has been a focus by key state entities this week on the impact of fuel smuggling and the crude-for-fuel barter arrangement on public spending, as well as the need for a 2025 budget.
On 19 November, the Audit Bureau (AB) head Khaled Shakshak met with NOC Chairman Farhat Bin Qadara to discuss the AB’s notes and recommendations after reviewing the NOC’s accounts and evaluating its performance. The meeting reviewed the indicators and results of the exceptional budget allocated to the NOC, which aims to increase oil and gas production, and the NOC’s expectations regarding increasing production this year. This indicates the Audit Bureau has completed its 2023 Audit Report, though it has not yet been published.
On 20 November, the Attorney General al-Siddiq al-Sour held a meeting with Shashak, Bin Qadara and the Central Bank of Libya (CBL) Governor Naji Essa to discuss the results of judicial measures aimed at deterring groups involved in smuggling activity, the cost of imported fuel and its proportion to local needs, and the compatibility of the crude oil barter method with the rules of public money management. According to the Attorney General’s office, the attendees discussed how to address the growth of fuel smuggling in order to reform the resulting budget distortions, in cooperation with the executive and legislative authorities.
On 20 November, Essa held a meeting in Tripoli with the Chairman of the House of Representatives’ (HoR) Planning, Finance and General Budget Committee Omar Tantoush and other members of the committee to discuss the difficulties and obstacles facing the CBL Board of Directors, the project to prepare a unified budget for the year 2025 and follow up on public spending, as well as amending some legislation to reform financial and trade policy, the public debt law and address the shortage in liquidity.
On 25 November, US Special Envoy Richard Norland and US Charge D’Affaires Jeremy Berndt visited Aqeela Saleh in Benghazi, discussing ‘the importance of strengthening the independence and integrity of the Central Bank of Libya and other key economic institutions and of consensus-based budgetary and financial policies to stabilize Libya’s economy.’
There has also been renewed focus on the transfer of oil revenues from the NOC to the CBL, generating some controversy.
On 24 November, an advisor to the Government of National Unity’s (GNU) Ministry of Finance, Omar Basisa, made statements to the Libyan press saying that the NOC had not referred oil revenues to the CBL to cover public sector salaries for November, claiming salaries for October were covered by a loan from the CBL. These comments were widely shared on Libyan social media. On 25 November, the GNU Ministry of Finance denied the rumours that there are any issues with paying November salaries for public employees.
The same day, the NOC published the schedule of bank transfers of revenue from oil sales from the NOC to the CBL throughout 2024, up to 25 November. It said this was inline with its commitment to transparency and in view of its increasing rates of production. The total value reached 14.362 billion USD over the year, via 21 separate transfers including 300 million USD in November. The NOC stressed that the table of figures shows that the NOC ‘was never late in reporting the indicated revenues, and was not in any way a reason or a hindrance to the liquidation of public sector employees, but that it is very keen to transfer the amounts due before their disbursement date most of the time.’ It added that the recent oil revenues are not due to any delay by the NOC but due to the CBL crisis and the consequences of the oil blockade in August and September.
Comment: Fuel smuggling remains a major issue in Libya, with the significant subsidies meaning fuel is extremely cheap and a significant profit can therefore be made by selling it on the black market or overseas. Such smuggling occurs at the level of local armed groups, especially in the western and southern regions, and at the level of more institutional players, especially in the eastern region. Due to the sky-high costs of importing fuel (as Libya has limited refining capacities), the crude-for-fuel barter system was established whereby instead of receiving payment for oil, Libya received shipments of imported fuel. However, this has created a highly opaque system which is hard to oversee. Many Libyan actors argue that this system distorts the public budget, as there is no direct oversight of the fuel bill nor the ‘lost’ oil income.
The question of NOC transfers to the CBL and the ability of the GNU to pay public salaries is another long-running issue. In the past, the GNU has accused the NOC of withholding oil receipts as well as tax and royalty payments. The payment of salaries has frequently been delayed in the past due to lack of funds, let alone cash-flow issues. Given the sheer size of the Libyan public sector bill and the numbers of Libyans affected, as well as the fact that all salaries are transferred as one, the payment of salaries is often a trigger for anger around the management of the economy. While the CBL is attempting to address the liquidity issues with shipments of cash to banks, a push towards e-payments and printing more currency, cash shortages remain an issue.
Significance: On the surface, the economic situation in Libya remains stable and the new CBL leadership appear to be working hard to introduce monetary measures to address key issues such as the lack of liquidity and inflation. However, as previously discussed by L-A, many of the underlying structural issues, both fiscal and political, remain unresolved. Key among these is the lack of a unified budget or a formal mechanism by which to agree one, and the lack of a unified government which is willing and able to take difficult fiscal decisions to balance the books, especially around the issue of fuel subsidies and the crude-for-fuel barter system. As it stands, it seems unlikely that the key political actors will be able to agree on a unified budget in the short term, even with international support, deepening political divisions further.
As always, the issue of how much money Libya is making through its oil exports and where that money is going remains a highly sensitive issue. As such, focus on the oil sector is likely to increase in the coming period amid the NOC’s push to increase production and its need for more funding to support this, as well as the push for fresh international exploration contracts. This is likely to lead to an increased politicisation of the oil sector. It is also unlikely that the GNU will be in a position to remove fuel subsidies or end the barter system (or force the NOC to do so) anytime soon. As a result, the monetary pressures on the Libyan economy (such as the bloated public sector, sky-high fuel costs, lack of liquidity and a hard currency deficit) are likely to keep building, with the CBL’s monetary measures alone unlikely to resolve them. This is likely to put pressure on the current CBL agreement and could undermine the position of the new governor and board, either by resulting in the agreement completely falling apart or by Essa and his board being increasingly pressured into becoming partisan actors, taking decisions based on political pressures and allegiances.
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Renewed tensions and assassinations in Zawiyya and Surman
Incident: On 21 November, in the morning, the dead body of an obviously murdered young man was found in the al-Malaha (Salt) Road area about 12 km south of Zawiyya. The man, Muhammed al-Zuweik, was killed with three bullets to the chest by unknown gunmen. In the evening of the same day, demonstrators closed the coastal road in Zawiyya at the al-Qardabiya traffic light with burning tires in protest against the killing of the young man. On the same day in Surman, Saif al-Din Sahmoud, the principal of a school, was targeted with gunfire by unknown assailants and shot in the head. Sahmoud was taken to a clinic in Tripoli, where he was admitted to intensive care in critical condition.
NOC pushes for 1.4mbpd by end of the year and encourages more private sector involvement in the sector; MOOG discusses cooperation with Turkey
On 23 November, the NOC held the ‘Strategic Partnership Forum for Oil and Gas’ in Tripoli under the slogan ‘Towards sustainable development and increased production’ focusing on increasing private sector participation in the Libyan oil sector. According to the NOC, more than 150 representatives from private companies participated in the meeting. The NOC said that during the forum a working group was formed comprising three members representing private sector companies in the western, eastern and southern regions. The group will be responsible for communicating with the NOC to follow up on the recommendations of the forum and the mechanisms for their implementation with the aim of enhancing the role of the private sector in the oil sector.
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NOC pushes for 1.4mbpd by end of the year and encourages more private sector involvement in the sector; MOOG discusses cooperation with Turkey
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