UN Calls for a Unified Budget—Can Libya Revive Its Stagnant Economy?

Libya's fragmented budget has fueled a complex economic crisis, worsened by political divisions and financial instability. The UN mission is calling on authorities to reach a consensus and unify the budget.

On February 5, 2025, the mission urged for a transparent and fair budget to enhance financial accountability, improve revenue allocation, and ensure economic stability in Libya. It also emphasized that such a step would strengthen the Central Bank of Libya’s ability to implement effective monetary policies and stabilize the exchange rate.

The call followed a statement from the Central Bank after its first meeting of 2025 in Derna, where it agreed to engage with relevant parties to approve a unified budget for 2025 under a law issued by the House of Representatives and implement reforms in public spending policies.

This is not the first push for a unified budget. The International Monetary Fund has made similar recommendations, stressing the urgency of such a step amid Libya’s worsening economic crisis, which has led to cash shortages in banks, rising prices, and a decline in the local currency’s value.

Libya's banking sector has also been affected by political divisions, with separate administrations running financial institutions for years. Disputes over the governorship of the Central Bank escalated between August and September 2024, before an agreement was reached to appoint a new governor and establish a unified management structure.

The Challenges of Budget Unification

Despite the economic necessity of a unified budget, an agreement remains unlikely due to Libya’s political divide, with one government led by Abdul Hamid Dbeibeh in the west, internationally recognized, and another under Osama Hammad controlling the east and parts of the south.

This governmental split complicates revenue and expenditure management within a single budget. Disputes frequently arise, particularly over development funding, as both administrations pursue large-scale projects—branded “Return to Life” in the west and “Reconstruction” in the east.

According to Ali al-Sharif, an economics professor at the University of Benghazi, unifying the budget requires a realistic political solution that consolidates the fragmented governments. He argues that the current measures are impractical and unlikely to succeed under the existing dual-government structure.

“Having two administrations has led to an excessive number of governmental bodies—over 50 or 60—resulting in significant budget inflation,” he told Al-Estiklal. This, he warns, weakens financial sustainability, especially amid declining oil prices and the inability of energy revenues to cover Libya’s public expenditures.

Libya’s oil revenues dropped by 23% in 2024, falling to 76.7 billion Libyan dinars ($15.5 billion) from 99.1 billion dinars ($20.45 billion) in 2023, leading to a fiscal deficit of 0.3 billion dinars ($61.6 million). The country previously suffered losses exceeding $100 billion between mid-2013 and the end of 2016 due to disrupted oil exports amid armed conflicts, with oil revenues accounting for 95% of Libya’s budget.

Economic expert Ali Mansour al-Salah argues that a country cannot function with parallel budgets for its executive sectors. He warns that duplicating public expenditure categories inflates costs, particularly for consumables, causing spending to surpass the gross domestic product (GDP). This, in turn, fuels inflation and allows excessive governmental control over the Central Bank’s autonomy.

Speaking to Al-Estiklal, al-Salah stressed that Libya must unify its budget to ensure economic stability.

In 2024, Libya’s public spending reached 123.2 billion dinars ($25.4 billion), with the majority allocated to public sector salaries, which totaled 67.6 billion dinars ($13.94 billion). 

16.1 billion dinars ($3.32 billion) were designated for essential goods and services, while development projects received 22 billion dinars ($4.54 billion).

Stability of the Dinar

Experts believe that agreeing on a unified budget will not only improve budget performance but also impact other economic areas. The lack of a unified budget contributes to increased uncertainty in financial markets and deepens the liquidity crisis in banks.

“Having multiple budgets in the country has also affected the exchange rate of the Libyan dinar [..] there is currently a very large cash supply in the market, exceeding 160 billion dinars, which closely tracks between 20 and 22 billion dollars—Libya's annual oil revenue,” al-Sharif said.

“The lack of a unified budget lies behind the local currency’s exchange rate problem, which led the Central Bank to devalue the dinar in 2021; the exchange rate remains unstable, and a parallel market continues to trade at a higher price than the official rate.”

In the parallel market, the exchange rate of the Libyan dinar against the dollar stands at approximately 6.53 dinars, while the official exchange rate set by the Central Bank of Libya is 4.87 dinars per dollar.

Unifying the budget is expected to stabilize the exchange rate of the Libyan dinar, as it will reduce pressure on the country's foreign reserves. It will also provide a clear financial outlook that could strengthen investor confidence and encourage investment across various sectors, thus stimulating the economy.

Ali Mansour Al-Sulh, an economic expert, believes that aligning spending priorities and determining distribution ratios based on local economic conditions will enable the Central Bank to perform its core functions in line with approved spending levels. This approach would also help address economic stagnation, fight corruption, and ease financial and administrative oversight.

“Adopting a unified budget would provide a clearer picture of total demand and its scale,” expert Ali Mansour al-Salah told Al-Estiklal. 

“This would simplify the determination of the true exchange rate of the local currency, thereby strengthening the effectiveness of monetary policy and enhancing its ability to control interest rates. Such measures would increase investor confidence and drive economic growth.”

The World Bank has predicted that Libya’s GDP will shrink by 2.7% in 2024, due to the ongoing unrest, which has negatively impacted local oil production.

Necessary Reforms

The success of unifying the budget relies on implementing a range of supporting economic policies, including improving public expenditure management and increasing transparency in resource allocation.

This is in addition to reforms in the banking sector, infrastructure development to support an attractive investment environment, and strengthening oversight institutions to prevent illegal exploitation of financial resources are crucial.

Al-Sharif believes that unifying the budget must be accompanied by the formation of a unified technocratic government. He also emphasized the need to explore ways to reduce expenditures and expand the base of public revenue, which is currently 98% reliant on oil income. This can be achieved through establishing a mechanism to properly collect taxes from the informal economy, which accounts for 70% of Libya’s economy.

Al-Sharif also pointed out the necessity of properly imposing customs duties on luxury goods. He mentioned that in 2024, letters of credit worth $11 billion were issued, but only $250 to $300 million were executed, reflecting the significant corruption in the ports and outlets responsible for those duties.

In 2024, Libya's total public revenue amounted to approximately 123.5 billion dinars ($25 billion), with oil sales leading the country’s revenues at 77 billion dinars ($15.5 billion). Oil royalties accounted for 13.1 billion dinars ($2.6 billion), according to data from the Central Bank of Libya.

Al-Salah emphasized that one of the key economic policies to follow alongside budget unification is transforming the budget into one based on goals and programs. This includes determining the optimal level of public spending, creating a mature tax base, adjusting prices, and modifying subsidy programs, especially for fuel.

He also called for greater alignment between fiscal policy, monetary policy, and trade policy in order to maintain inflation rates and foster economic growth.