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Quick Facts
- Population:
- GDP (PPP):
- $37.5 billion
- -61.0% growth
- -14.7% 5-year compound annual growth
- $5,787 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
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Numerical grading of Libya’s overall economic freedom has been suspended in the 2013 Index because of the ongoing political turmoil that has resulted in a state of civil unrest and the significantly deteriorating quality of publicly available economic statistics. Those facets of economic freedom for which data are still available have been individually scored. As a “repressed” economy with a score of 35.9, Libya was ranked last in the Middle East/North Africa region when it was last graded in the 2012 Index.
The Libyan economy is at a critical juncture as the government confronts the daunting challenges of stabilizing the economic environment and implementing much-needed reforms following the revolution. The short-term need is to ensure a peaceful political transition while maintaining macroeconomic stability. The economic infrastructure has been significantly degraded during the civil war, and economic uncertainty remains very high as the weak interim government struggles to restore the rule of law and establish a new system of effective governance.
Before the downfall of the Qadhafi regime in 2011, the Libyan government, overly dependent on the oil sector, had undertaken limited reforms to diversify its economy. The banking sector, though still largely state-owned, saw some marginal liberalization and even the introduction of foreign banks. The weak rule of law and systemic corruption have largely marginalized private-sector activity in the formal economy.
Background
Rebels backed by the U.N. Security Council and a NATO bombing campaign overthrew the Libyan regime, capturing and killing Muammar Qadhafi, in October 2011. A National Transitional Council led the difficult transition. Former interim Prime Minister Mahmoud Jibril of the National Forces Alliance won the July 2012 elections to head the 200-member assembly that will form a new government. Oil and natural gas provide about 95 percent of export revenues and 80 percent of government revenues. Libya once had one of Africa’s highest per capita incomes, but decades of erratic leadership and socialist economic policies have ruined the economy.
Since 2011, the country has split into regions controlled by rival factions, and the central government has weakened. The rule of law has not been well established, and the foundations of economic freedom are weak or lacking in every area. Corruption is rampant.
The top income tax rate is 15 percent, but other taxes have made the top rate much higher in practice. The top effective corporate tax rate is 20 percent. Taxation has not been enforced effectively since early 2011. Large oil revenues have allowed excessive government spending in the past. Instability and a weak central government continue to hamper the effective management of public finances.
Regulatory efficiency has been very poor, and only limited private entrepreneurial activity has been successful. Application of regulations has been inconsistent and non-transparent. The labor market remains destabilized, and the large informal sector is an important source of employment. The intense political upheavals of 2011–2012 were accompanied by very high inflation and general monetary instability.
The Libyan Customs Administration imposes a flat 4 percent “service fee” on most imported products, and myriad non-tariff barriers add to the cost of trade. The financial system continues to function relatively normally, but limited access to financing has severely impeded any meaningful private business development. Commercial banking has been dominated by four main banks.