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Libyan unity government could curb public spending

Friday, February 13, 2015

Significance

The two largest oil ports, Ras Lanuf and Es Sider -- with a combined capacity of 600,000 barrels per day (b/d) -- are still closed due to fighting between rival factions, even though the UN-sponsored dialogue for a unity government is progressing. Libya is heavily dependent on oil and gas exports; 95% of its annual budget is generated from hydrocarbons. The decline in world oil prices since mid-2014, and the likelihood that oil will remain below 70 dollars per barrel in 2015, mean that Libya will further drain its foreign exchange reserves -- or make large spending cuts. The former is the easier choice.

Impacts

  • Financing from foreign reserves has been a policy since June 2014, but it is unclear how much of it has been spent.
  • The use of foreign exchange reserves will prevent a budget crisis in 2015.
  • Over the medium term, fiscal health will deteriorate.
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