Libya

A country split in two

The 2011 revolution and the fall of Muammar Gaddafi after 42 years in power plunged Libya into a period of instability that ultimately led to the country's de facto division from 2014 onwards. In the west, the Government of National Unity (GNU), led by Prime Minister Abdul Hamid Dbeibah from Tripoli and supported by the High Council of State, is the only executive authority recognised by the international community. In the east, the Government of National Stability (GNS), headed by Prime Minister Osama Hammad and based between Sirte and Benghazi, has been backed by the House of Representatives since 2022 following the indefinite postponement of the presidential and parliamentary elections initially scheduled for 2021. The GNS enjoys the support of Field Marshal Khalifa Haftar's Libyan National Army (LNA), which effectively holds real power in the region. Most of Libya's oil and gas resources are located in territories under LNA control. This institutional duality, embodied by two rival administrations surrounded by a multitude of armed militias, continues to severely undermine governance and economic development.

Although political reconciliation remains a distant prospect, several recent developments have raised hopes for closer cooperation between the two sides. The Central Bank of Libya (CBL), headquartered in Tripoli, was notably reunified in 2023. The institution is particularly strategic as it collects and redistributes oil revenues, which account for virtually all government income. More recently, backed by US mediation, eastern and western factions jointly accepted a unified 2026 budget, the first in more than a decade. In August of the same year, the two sides also signed a UN-sponsored agreement aimed at organising elections within a maximum period of 24 months. However, this timeline remains conditional on the creation of a unified executive authority and national institutions. Political instability nevertheless persists, as illustrated by Central Bank Governor Naji Issa's attempted resignation during the summer of 2026, despite having been appointed two years earlier to stabilise the management of oil revenues. On the security front, the Joint Military Commission (5+5) established under the 2020 ceasefire agreement remains one of the main channels of dialogue between the opposing camps.

Libya's political fragmentation is also shaped by competition among rival foreign powers. Tripoli benefits from Turkey's political and military support, as well as financial and diplomatic backing from Qatar. By contrast, the eastern camp is supported by Egypt, the United Arab Emirates, and Russia, which seeks to strengthen its foothold in both Africa and the Mediterranean, notably through the Africa Corps (formerly the Wagner Group). Nevertheless, the easing of tensions between several regional powers that support opposing factions has reduced the scope for proxy confrontation and encouraged a more pragmatic approach focused on preserving stability and maintaining the balance of power.

Growth is heavily dependent on oil

With hydrocarbons accounting for more than 60% of Libya's GDP, economic growth is expected to slow in 2027 as oil prices normalise, assuming that the Strait of Hormuz will remain open on a long-term basis. Nevertheless, activity should continue to be supported by rising oil production, following the record average of nearly 1.4 million barrels per day reached in 2026, the highest level in more than a decade, provided that relative political and security stability is maintained. The extractive sector is therefore expected to attract the bulk of foreign private investment as the authorities seek to increase production to two million barrels per day by 2030. However, the award of only five out of the 22 blocks offered by the National Oil Corporation (NOC) in its 2025 licensing round - the first since 2007 - highlights the difficulties of reconciling Libya's ambitions with the requirements of international oil companies, which are returning cautiously to the country. In the gas sector, the NOC is continuing to develop the offshore Structures A&E project (USD 8 billion) in partnership with Italy's Eni. Scheduled to come on stream in 2027, the project should help improve electricity generation at a time when power outages continue on a frequent basis.

Furthermore, the passing of a unified budget for 2026 should facilitate the financing of development and reconstruction projects while improving the coordination of economic policies across competing institutions. This first step toward reunification could revive discussions on the gradual easing of the freeze on part of Libya's approximately USD 80 billion sovereign wealth fund, with the aim of financing targeted investment projects. Frozen since 2011 under international sanctions, these assets are in principle tied to the establishment of an elected government.

Given Libya's overwhelming dependence on oil, which generates more than 95% of government revenues, high public spending will continue to support household consumption, albeit to a lesser extent than in 2026, as the public sector remains the country's main employer, accounting for around 80% of formal employment. By contrast, the non-oil private sector is expected to stay underdeveloped and largely informal. Inflation, which is likely to be underestimated despite the recent change in calculation methodology, should ease slightly in 2027, mainly on back of a base effect stemming from the January 2026 devaluation of the Libyan dinar, which substantially increased import costs. Libya remains heavily dependent on imports, equivalent to around 65% of GDP in 2025. Inflation will nevertheless continue to weigh on household purchasing power. The devaluation, combined with the abolition of the 15% tax on foreign exchange transactions in March 2026, helped narrow the gap between the official exchange rate and the parallel market rate, although the latter still finances nearly 60% of the country's imports.

Persistently uncertain fiscal situation

Libya's fiscal position remains closely tied to the hydrocarbons sector. Despite the likely normalisation of oil prices in 2027, the budget surplus is expected to be preserved, supported in particular by rising oil and gas production. This would extend the recovery in public finances observed after several years of substantial deficits. The passing of a unified budget should also improve the transparency and coordination of public spending, which had previously been conducted separately by the country's two rival administrations. It would furthermore allow part of the revenue previously diverted from the formal budget framework to be reintegrated into official channels. Under the agreement, the Government of National Unity (GNU) will retain responsibility for current expenditure, while fixed capital spending will be determined by a joint committee representing both sides under the supervision of the Central Bank of Libya (CBL). More specifically, the decline in non-tax revenues resulting from the abolition of the foreign exchange transaction tax should not be an obstacle to continued public investment. Following recommendations from the CBL, the authorities are also expected to seek to contain growth in the public sector wage bill and energy subsidies, which respectively accounted for 30% and 20% of GDP in 2025, although progress is likely to remain limited.

The maintenance of a budget surplus, albeit a smaller one, combined with robust nominal growth and the gradual reduction of parallel financing mechanisms, should help lower public debt as a share of GDP. Debt reduction, however, remains a secondary concern. Libyan public debt is largely held by the CBL, which finances the government through the use of its foreign exchange reserves, and is denominated in local currency. Consisting mainly of advances and intra-public sector claims, it imposes only limited financial constraints on the state, as it carries neither interest payments nor fixed repayment schedules.

Following a sharp rise in 2026 that was driven by higher oil prices, the current account surplus is expected to narrow in 2027. Lower global oil prices are likely to weigh on export revenues despite continued growth in oil and gas production. Imports will remain strong, supported by reconstruction spending, infrastructure projects and investment in the energy sector. The services deficit is expected to stay elevated due to Libya's heavy reliance on foreign expertise for the implementation of large-scale investment projects. Despite the narrowing of the current account surplus, the external position should remain comfortable thanks to substantial foreign exchange reserves, which are equivalent to more than 30 months of imports, and continued inflows of foreign direct investment. These investments are expected to remain concentrated in the hydrocarbons sector, but will continue to be hampered by institutional fragmentation, political uncertainty and an unfavourable business environment, which will prompt many investors to postpone their largest commitments.

Last updated:August 2026