Testing the assumptions behind the headlines.
Libya confronts a long list of woes: militia violence, political infighting, and high unemployment. Could bankruptcy be around the corner?
Militiamen's sale this weekend of oil they seized months ago highlighted the government’s inability to control Libya’s chief asset and seems to have lent momentum to yesterday's no-confidence vote in parliament against its prime minister.
A militia shutdown of eastern oil ports has indeed cut oil output, the source of nearly all state revenues, to below a third of capacity. And the $36 million profit from the weekend sale is yet another chunk of cash not going into government coffers. But for now, Libya has plenty of cash in the bank.
According to one official at Libya's central bank, the bank holds about $120 billion, of which $90 billion is at its direct disposal. In addition, Libya’s state investment company has about $60 billion in assets, and several other state entities have holdings worth “a couple of billion here and there.”
The bottom line, the bank official says, is that about $170 billion in assets could be mobilized to cover any shortfall in government revenues.
“Most are highly liquid, and can easily finance three years of total [government] deficits,” says the bank official, who asked not to be named because he was not authorized to speak to media.
The ability to spend big is vital if Libya is to build strong military and police forces. At present, both exist but are vastly outnumbered and outgunned by numerous local militias.
Will Libya’s government run a deficit this year? Very likely. In theory, state budgets are to be funded by oil exports. Since last summer, exports have dropped from 1.6 million barrels per day to less than a third of that as militiamen seize control of eastern ports and demand more regional autonomy and a cut of oil revenues.
The tussle over oil is as political as it is economic. Libya's main employer is the public sector, whose budget is fueled by oil export revenues, so control of oil equals power.
Libya’s finances can take the strain of low oil output for now. But long-term political stability – not to mention the country’s job market, living standards, and scope for entrepreneurship – will require Libya to do more to exploit another natural resource: its people.