International report: Oil recovery boosts Libya’s economy, while current spending and lack of budget threaten sustainability.

December 21, 2025
libyawire
Economy
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A World Bank report on Libya’s recent economic developments highlights key findings on economic performance, showing a strong but fragile recovery alongside persistent institutional imbalances.

Economic Recovery:

The Libyan economy has experienced a strong recovery in GDP, driven primarily by the recovery and expansion of the oil sector. Oil production during the first nine months of 2025 rose to an average of 1.3 million barrels per day, a 17% increase year-on-year. Non-oil sectors also maintained their resilience, supported by both public and private consumption.

Improved Fiscal Position (with a Distorted Expenditure Structure):

The fiscal surplus of the Government of National Unity widened to 3.6% of GDP during the first nine months of 2025. This improvement is attributed to increased oil production and the devaluation of the Libyan dinar in April 2024, which boosted hydrocarbon revenues by 33%. However, public expenditure continued to rise, driven by increases in the wage bill and subsidies, while capital expenditure declined sharply, indicating a shift in spending towards current expenses.

Institutional Fragmentation and Lack of a Unified Budget:

The political landscape remains stalled due to entrenched rivalries between the Government of National Unity and the Government of National Stability based in the east of the country. The failure to pass a unified national budget for 2025 is an indicator of ongoing political divisions, which undermines macro-level public financial management, limits transparency, and weakens fiscal discipline.

Monetary Concerns:

Despite a slowdown in the growth of the money supply (M2), currency in circulation outside the banking system continued to rise by 8.9%, reflecting persistent weak public confidence in the banking system. The gap between the official and parallel exchange rates also widened significantly during the first three quarters of 2025.

The economic outlook appears positive but remains highly dependent on political stability and global energy markets:

Strong Growth Expected:

Real GDP is projected to record strong growth of 13.3% in 2025, driven mainly by the expansion of oil sector activities. Growth is expected to slow in 2026 and 2027 as oil production stabilizes.

Fiscal and External Positions:

The fiscal position is expected to improve, with the fiscal surplus reaching 3.8% of GDP in 2025. The current account deficit is also likely to narrow, with a potential return to a surplus of around 3% by 2027.

Key Risks:

The outlook faces significant downside risks stemming from continued political fragmentation, institutional divisions, and the absence of a unified national budget. On the external front, risks include a sharper-than-expected global slowdown or a further decline in oil prices. The most prominent long-term challenge remains diversifying the economy and reducing dependence on hydrocarbons.

This section reviews the challenges and proposed pathways for reforming public financial management:

Vulnerabilities: The combination of institutional fragmentation, parallel budget structures, and heavy reliance on oil revenues hinders sound public financial management and makes fiscal planning vulnerable to external shocks. The application of the Public Expenditure and Financial Accountability (PEFA) framework reveals deficiencies in Libya’s public financial management system, particularly in budget preparation, execution, and reporting, compared to other fragile and conflict-affected states.

Core Reform Priorities: Libya’s reform agenda, prepared in cooperation with the World Bank, focuses on three key areas:

Establishing a Treasury Single Account (TSA) to consolidate and manage government cash resources.

Implementing an enhanced cash management function.

Reviewing the currently used Budget Classification – Chart of Accounts (BC–CoA).

Success Condition: The successful implementation of these reforms critically depends on political consensus and institutional cooperation among key stakeholders, notably the Ministry of Finance, the Central Bank of Libya, and the wider banking sector.

The report concludes that the ongoing PEFA assessment represents a pivotal opportunity for the Government of National Unity to review and refine its reform agenda, moving from technical design to securing the necessary political and institutional support to build a more transparent and resilient public financial management system.

Libya

Libya is a North African country with a rich history rooted in ancient civilizations like the Phoenicians and Romans, followed by centuries of Arab and Ottoman influence. In the modern era, it was an Italian colony before gaining independence in 1951, later becoming known for Muammar Gaddafi’s lengthy rule from 1969 until the 2011 revolution. Its cultural sites include the well-preserved Roman ruins of Leptis Magna, a UNESCO World Heritage site.

World Bank

The World Bank is an international financial institution founded in 1944 at the Bretton Woods Conference, with its initial mission focused on the post-World War II reconstruction of Europe. Today, its primary goals are to provide loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects and reducing poverty.

Government of National Unity

The Government of National Unity (GNU) is a term most notably applied to the post-apartheid coalition government in South Africa, formed in 1994 following the country’s first multiracial elections. Led by Nelson Mandela as President, it brought together the African National Congress, the National Party, and the Inkatha Freedom Party to oversee the transition from minority rule to a democratic state.

Government of National Stability

The “Government of National Stability” is a political term, not a specific place or cultural site. It has been used historically to describe coalition governments formed during times of crisis, such as in Hungary in 1944 or in reference to proposed governments in other nations during periods of political instability.

Ministry of Finance

The Ministry of Finance is a key government department responsible for managing a nation’s revenue, economic policy, and public spending. Its history is often intertwined with the formation of the modern state, evolving from earlier treasury or exchequer offices to address the growing complexity of national economies and public finance.

Central Bank of Libya

The Central Bank of Libya is the country’s primary monetary authority, established in 1956 to issue currency and manage monetary policy. It has played a critical and often divisive role in Libya’s recent history, with parallel institutions emerging in the east and west during the period of conflict following the 2011 uprising.