By: Suliman S. Al-Shahomy*
Oil prices decreased globally to less than what was expected for
this year, and exceeded 30 Dollars per barrel, for the first time in 12 years, estimates fear more slide, some specialized corporations fear that prices could hit 10 Dollars per barrel. The question asked by everyone is what is happening and what are the reasons for that drooping.
From my point of view, there are many reasons; the first and most important is the decision of the Unite States to export oil, it produces nearly 10 million barrel per day, from only 5 million.
The second reason is abundant of supplies from OPEC countries, decision of major producers like Saudi Arabia not to reduce production, which worth ten million barrel daily, and despite calls for Saudi Arabia to reduce production, it seems that the Kingdom is using that as a policy to take out competitors and impede Iranian oil exports after lifting international sanctions.
The third reason is the slowing Chinese economy, which suffers internal crises that confused known growth rates, beside crises hit Chinese stock market, which is considered as one of the largest markets across the world.
The fourth reason is the strength of the US Dollar, which reflects the strength and recover of the American economy which is reflected in the reduction of goods and commodities prices globally, and increased demand for the Dollar comparing to other currencies, which negatively affected growing economies due to increased cost of imports and affected demand for oil and other commodities across global markets.
In the wake of such international changes, and fear that the global economy would fall into furnace of new economic crisis, specially which huge losses suffered by global stock markets, and in the wake of current paralysis statues of the Libyan economy and shrinking opportunities for the return of oil productions to previous levels, 1.7 million barrels per day, with the required phase, especially that oil exports worth 95% of Libyan exports, hence it is the main source for revenues, oil revenues was 10 billion in 2015 on 50 Dollars for barrel, while none oil revenues was 525 million from taxes and 30 million from customs.
Building on that, oil revenues expected in 2016 won’t likely exceed 6 billion, if the same circumstances continued regarding importing and exporting, while state salaries only, need 20 billion and subsidies need another 10 billion. It is no doubt that such tragic situation would cast negative shadows on the Libyan economy, the coming government has only limited choices, some would be extremely severe for ordinary citizen who only seeks to provide fundamentals of living, within current political fragmentations, infighting, and what most inhabitants face of displacements and risen prices.
In my estimation, the new government only has two choices, while the best is bitter:
The First; the public expenditures would continue in the same line as the previous budget, which would cause more deficit that might exceed 50 billion, the problem is how that deficit would be filled with the absence of known mechanisms for borrowing from inside via governmental bonds, which is forbidden due to laws preventing dealing with benefits. Such laws confused and disrupted banking sector, and despite frozen by the House of Representatives (HoR), the Central Bank in Tripoli and government affiliated to the General National Congress (GNC), which controls expenditures and revenues, still using those laws and didn’t provide any other alternatives to fill budget defection. Defection of last couple of years was filled by loans from the Central Bank. Such situation would lead to more deterioration of the Libyan currency before the Dollar, that would affect living standards, that choice is like slowly walking towards a catastrophe.
The second choice is to resolve issues of public budget, reduce expenditures, eliminate corruption in budget, cancel subsides, reconstruction and reduction of salaries, announce austerity policy among all governmental institutions, launch programs to improve tax and customs proceeds, and adopt new services fees.
Concerning monetary, there should be improvements inside the Central Bank, activate monetary policies like stimulating banks sector to mobilize savings and money outside banking frame via attractive interests prices to fund defection of the budget, the expansion of borrowing for the establishment of small industrial and service projects, apply importing budget to control usage of foreign reserves, provide programs for social protection for poor to face cancelation of subsidies through the activation development Fund beside to Social Solidarity Fund.
There is no doubt that the dramatic slide of global oil prices, in the awake of exports drooping to less than third, needs vision about its effects on the national economy and citizens, and solutions within available choices in the form of announced emergency plan that specifies mechanisms of resolving and responsibilities of each ministry and entity.
The situation of Libyan economy is so fragile, the next government has to start diagnosing the current issues, then start implementing resolutions, which would probably be cruel and shocking.
What Libya is facing needs courageous resolutions to save the state from current catastrophic situation, and saves everyone from sliding into more deteriorating.
*A Libyan Finance Expert and The Founder of Libyan Financial Market
Translated By LIBYAPROSPECT