The Resilience of Libyan Economy Towards the Restoration of Macroeconomic Indicators
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2nd International Conference on Management, Humanity and Economics (ICMHE'2013) August 25-26, 2013 Kuala Lumpur (Malaysia) Beyond the Civil War and Revolution: The resilience of Libyan Economy towards the Restoration of Macroeconomic Indicators Mohamed Ibrahim1, Mahazan Abdul Mutalib2, and Adel M.Abdulaziz3 representatives, 80 of whom are members of political parties, Abstract—Libya is an oil-rich country of Africa accounting for and 120 independents. The GNC elected Mohammed Magariaf 3.2 percent of the total world resources. It accounts for 80 percent of as its President and de facto President of Libya in August 2012 GDP, over 95 percent of exports, and 90 percent of government and Ali Zidan as Prime Minister in mid-October. Prime revenue. With the current level of oil production and high prices on Minister Zidan’s proposed coalition government was approved international markets, the Libyan economy is expected to recover this on October 31, 2012. The GNC has a term of 15 months year. The civil war and revolution of Libya has badly affected the during which it plans to hold elections for a 60-member performance of Libyan economy in terms of macroeconomic indicators. Fortunately, the civil war did not extended for a long time committee (20 representatives from the three main regions) to and came to its logical end. The Libyan economy has shown an draft a new constitution for Libya. The government’s priorities outstanding resilience to restore the economy with a greater speed. announced in the 2013 plan and budget include restoring The credit may go to the restoration of oil production by the new national security, reconciliation, disbanding armed militias, government which boosts up the export earnings and government promoting economic recovery, decentralization and improving revenue. Consequently, the higher earnings increase government basic services at the local level, combating corruption and budget surplus, employment and output. The Libyan economy will be Promoting transparency. fully restored and stabilize during the existing year. The prime minister is credited for having taken clear actions to strengthen security with the formation of an integrated Keywords—Libyan economy, resilience, macroeconomic national army and the successful (and peaceful) second indicators. anniversary of the revolution in February 2013. I. THE INITIATION OF CIVIL WAR AND REVOLUTION IN LIBYA II. THE IMPACT OF CIVIL WAR ON LIBYAN ECONOMY HE Libyan civil war and the Libyan revolution was an The loss of hydrocarbon income during the conflict reduced armed conflict in the North African state of Libya, fought T Libya’s current account surplus. Exports declined from $48.9 between forces loyal to Colonel Muammar Gaddafi and billion in 2010 to $19.2 billion in 2011, while imports dropped those seeking to get rid of his government. The war was from $24.6 billion to $14.2 billion during the same period. As headed by protests in Benghazi beginning on Tuesday, 15 a result, the current account surplus narrowed from 21 percent February 2011, which led to clashes with security forces that of GDP in 2010 to less than 4½ percent of GDP in 2011[1, 2]. fired on the crowd. The protests escalated into a rebellion that The following figure-1 shows fiscal and current account spread across the country with the forces opposing Gaddafi balance. establishing a temporary governing body, the National Transitional Council (NTC). Until 20 October 2011, when he was captured and killed attempting to escape from Sirte. The National Transitional Council "declared the liberation of Libya" and the official end of the war on 23 October 2011. Libya is recovering from the revolution and civil war initiated in 2011. Libyans elected a General National Congress (GNC) on July 7, 2012, to replace the National Transitional Council (NTC) which had governed the country since the previous November. GNC, which is the legislative authority of Libya, is composed of 200 1PhD candidate, Faculty of Leadership and Management, Universiti Sains Islam Malaysia Fig.1 Disruption of current account balance and overall fiscal balance 2Senior Lecturer, Faculty of Leadership and Management, Universiti Sains in Libya during the civil war period Islam Malaysia 3Associate Professor, Faculty of Quranic and sunnah studies, Universiti Sains Islam Malaysia. 145 2nd International Conference on Management, Humanity and Economics (ICMHE'2013) August 25-26, 2013 Kuala Lumpur (Malaysia) th III. THE RECOVERY OF HYDROCARBON SECTOR AFTER THE economy. Within one year (2011-2012) 3/4 of the total crude CIVIL WAR IN LIBYA oil production in 2010 has been covered in 2012 [4]. The hydrocarbon sector dominates the Libyan economy. The Libyan oil and gas sector occupies an important position IV. THE RECOVERY OF MAJOR MACROECONOMIC in the world energy balance on account of the size of the INDICATORS hydrocarbon reserves, production, and potential capacity. With Like political disorder, law and order situation developed proven oil reserves of 48 billion barrels (2011), Libya economic syndrome during the civil war and revolution time accounts for 3.2 percent of total world reserves—sufficient for period. All macroeconomic indicators were showing negative 85 years at current rates of production; its natural gas reserves tendency. Gross Domestic Product (GDP), GDP per capita and are relatively smaller, at 0.8 percent of the world’s total. In real economic growth decreased remarkably during the terms of the domestic economy, the hydrocarbon sector political unrest period in Libya. The following table-1 shows represents four-fifths of GDP. It generated about 95 percent of macroeconomic indicators of Libyan economy before and after total fiscal revenue and 98 percent of export receipts in 2011- the revolution [6]. 12 [3]. TABLE I Libya’s economic recovery that began in 2012 has MACROECONOMIC INDICATORS OF LIBYAN ECONOMY DURING AND AFTER continued in 2013, driven primarily by the oil sector. The THE REVOLUTION 2011 conflict caused large disturbances in oil production, and the economy contracted by more than 60 percent that year. By end-2012, however, oil production was nearly back to pre-war levels (1.6 million bpd), supporting a doubling of real GDP. Strong growth is also expected in 2013: Libya’s Central Bank forecasts real GDP growth between 16 percent and 18 percent in 2013 (compared to a forecast of 20 percent GDP growth by the International Monetary Fund). A surge in public sector spending, part of which on generous transfers that have boosted household incomes and consumption, is supporting recovery in the non-oil economy as well—44 percent real growth in 2012, with another 25 percent growth expected this year as the reconstruction process accelerates. Growth in the non-hydrocarbon sector is expected to have fully recovered from the conflict by 2014, but this hinges on restoring stability and security to allow for investments to pick up again [4]. The following figure-1 shows the historical data of oil production in the Libya. The figure shows a smooth performance of oil production at pre civil war time period but during the civil war, oil production was badly disrupted. It dropped to 1/5th of the pre-civil war period. The post-civil war scenario is amazing. The oil sector recovers itself exponentially, representing a very past speed towards the equilibrium quantity[5]. Source: CIA world fact book, 2013 Note: calculation under the last Colum have made by the authors. 1 Recovery rate is calculated as simple percentage: (Macroeconomic variable value at 2012- macroeconomic variable value at 2011)/ Macroeconomic variable value at 2011* 100 Fig.2 Oil Production Collapsed (In thousands of barrels per day, Table-1 represents the macroeconomic indicators of the annual average Libyan economy before and after the revolution and civil war taken place in 2011. The table shows that Libyan economy is The figure-1 shows the historical production of crude oil recovering from civil war and revolution shocks at a very rapid production since 2000. The crude oil production has been speed in terms of macroeconomic indicators. The exchange collapsed in 2011 after the civil war and revolution in Libya. rate has stabilized, foreign investment has improved, foreign The economy has shown outstanding resilience in restoring the reserves and gold has increased, export has remarkably increased if compared to 2011, current account balance has 146 2nd International Conference on Management, Humanity and Economics (ICMHE'2013) August 25-26, 2013 Kuala Lumpur (Malaysia) improved, public debt has decrease and GDP per capita has also increased. These indicators reveal that Libyan economy is remarkably recovering and progressing. Fig.3 The comparison of macroeconomic indicators during and after the civil war Figure-2 shows comparison of selected macroeconomic economic indicators. The figure shows outstanding recovery of all major indicators disrupted from civil war in Libya. This is evident for an outstanding resilience of the Libyan economy towards the recovery from the disruption occurred. V. CONCLUSION Libya has to ensure long-term stability to move away from its dependence on oil toward a diversified economy led by a competitive private sector. The loss of hydrocarbon income during the conflict reduced Libya’s current account surplus. Exports declined from $48.9 billion in 2010 to $19.2 billion in 2011, while imports dropped from $24.6 billion to $14.2 billion during the same period. As a result, the current account surplus narrowed from 21 percent of GDP in 2010 to less than 4½ percent of GDP in 2011. The civil war and revolution of Libya has badly affected the performance of Libyan economy in terms of macroeconomic indicators. Fortunately, the civil war did not extended for a long time and came to its logical end. The Libyan economy has shown an outstanding resilience to restore the economy with a greater speed. The credit may go to the restoration of oil production by the new government which boosts up the export earnings and government revenue.