adminTRIPOLI. — Libya is burning through central bank reserves and scrapping infrastructure projects to overcome its worst budget crisis in decades after the seizure of oil installations by armed groups has reduced the government’s income almost to zero. Oil exports — Libya’s lifeline — fell to less than 100 000 barrels a day last week after militiamen shut down two large oilfields, compounding closures of ports in the east by rebel groups campaigning for regional autonomy.
Exports had exceeded one million barrels per day before armed militias, who helped oust Muammar Gaddafi in the 2011 civil war, started seizing oil facilities last summer to grab a slice of the country’s oil wealth.
The budget crisis threatens to accelerate Libya’s slide into instability as Tripoli’s fragile government struggles to impose its authority on a country where brigades of heavily armed ex-rebels challenge its efforts to introduce democracy.
Any immediate collapse of the state— at least in the next few months — looks unlikely. Libya accumulated more than US$130bn in foreign reserves during times of high oil prices. But US$16 billion have been spent since last summer, killing off plans to overhaul dilapidated roads, schools and hospitals.
“The situation is very, very bad,” said Abdelsalam Ansiya, a former lawmaker who was until recently the head of the Libyan parliament’s budget committee.
Parliament has failed to approve a budget for 2014 as there is no money to spend — oil and gas exports make up 95 percent of income. Loss of government control of some land border crossings has hit customs duties, one of the only other non-oil sources of income. Few people pay taxes.
Oil revenues in the first two months of this year were 16 percent or less of the budgeted level, officials say. To keep the state running, the central bank has granted a US$2bn emergency loan. It had already given US$800m to the electricity ministry, which is struggling with power outages.
Diplomats expect the central bank to dip further into its foreign reserves because slashing the US$53bn budget is not an option for a weak government ill-equipped to take tough measures.
Almost 70 percent of the 2013 budget was spent on public sector salaries and on subsidies for anything from wheat and gasoline to airline tickets and militia brigades on the state payroll – a hangover from the Gaddafi era meant to keep Libyans happy and social unrest under control.
To keep paying salaries the government has started tapping a special savings fund worth around US$10bn, which had been meant as nest egg for future generations, Ansiya said. Libya had last year ran a budget deficit of around 6 billion Libyan dinars, he said.
While the government badly needs to cut spending, the budget is actually set to rise this year. The proposal calls for an increase of 2 billion dinars after the government agreed a 67 percent salary increase for oil workers in a futile attempt to buy their loyalty.
The main budget challenge for the government is Libya’s dysfunctional public service, a legacy from Gaddafi, who put most adults on the payroll to discourage opposition.
In Benghazi, 22 000 soldiers were on the payroll but apparently not working, said political analyst Salah Elbakhoush. Islamist militants and other militias roam unchallenged, while car bombs and assassinations happen almost daily.
Libyans are also used to paying only two cents for a loaf of bread or US$70 for a one-hour domestic flight, subsidies introduced by Gaddafi which the new rulers are afraid to cancel for fear of social unrest.
Central bank officials went on live television to stem rumours of state collapse by stating that Libya’s foreign currency reserves would keep the country afloat.
“The economy could manage for two and half years though under great difficulties,” Ali Mohammed Salem, deputy central bank governor, told al-Nabaa television last week. — Reuters
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