Oil unrest to slash Libya's economic growth: central bank head

Government has no plan to sell assets or foreign exchange reserves
Oil unrest to slash Libya's economic growth: central bank head
Unlike other countries that went through Arab Spring uprisings, Libya is rich because of its oil reserves and accumulated oil earnings.
By Reuters
Tue 17 Sep 2013 10:52 AM

Libya's economy could grow just 5 percent instead of around 18 percent predicted by the IMF this year if the country cannot end protests that have all but halted its oil exports, its central bank governor told Reuters.

The government has been trying to negotiate with feuding tribes, militia and protester groups over the past two months to end the worst disruption since the country's 2011 revolution.

The stoppages have cost the Libyan government billions of dollars in lost revenues and helped drive global oil prices to six-month highs during August.

With the economy almost entirely dependent on hydrocarbons, Governor Saddek Omar Ali Elkaber said the collapse in output to a tenth of Libya's maximum capacity of 1.5 million barrels per day would leave the government with barely any revenue.

But he said he opposed suggestions by some decision makers and politicians that the government could draw on Libya's foreign exchange reserves or cash deposits in its $60 billion sovereign wealth fund.

"This is wrong... resorting to reserves would be possible if there were external circumstances," Ekaber said in an interview on Monday.

"If... there was a drop in oil prices globally, then you have force majeure... but this (stoppage is) an internal factor and you should control it by other means," he told Reuters in his ornate office in the old quarter of Tripoli.

"Part of these reserves are foreign credit obligations and contracts that cover Libyan banknotes. People think we are just sitting on them."

There was also no intention to sell assets from Libya's sovereign wealth fund. "These were long-term investments and there is no intention to liquidate any assets now."

The portfolio includes shares in Italian bank UniCredit .

Unlike other countries that went through Arab Spring uprisings, Libya is rich because of its oil reserves and accumulated oil earnings.

Gross domestic product "growth was expected at 18 percent according to IMF estimates for 2013," said Elkaber, who was appointed after the 2011 war that ousted dictator Muammar Gaddafi.

But "if these strikes continue in the sources of production and ports of export, I don't think growth will exceed 5 percent," Elkaber said.

The International Monetary Fund estimates Libya's economy shrank 60 percent in 2011 because of its civil war, but expanded 122 percent last year as oil output resumed. It expects growth to average 7 percent between 2014 and 2017.

The government's $54 billion budget is 95 percent reliant on oil and gas revenues.

Elkaber said Libya was struggling to end the legacy of state control over its $100-billion-plus economy.

Billions of dollars of subsidised foodstuffs and fuels are smuggled abroad.

The IMF was advising on a fairer cash transfer system although many hurdles stood in the way of changing a cultural mindset under Gaddafi of dependence on the state, he added.

"There is no justice in distribution if the subsidies stay in this way," Elkaber added.

He said the central bank did not intend to issue licenses to global and Arab Gulf banks despite repeated requests until a permanent government and constitution are in place, a goal set for next year.

"There are pressures by global banks to enter the market and get licenses, but ... we said it's premature until the Libyan state is set up. Now we are in a transition period," Elkaber said.

"After that, Libya would have an open market and economy and survival would be for the fittest."

Elkaber said any global banks interested in entering the Libyan market would have to work under Gaddafi-era banking laws that permit foreign banks to strike management deals or buy up to 49 percent equity in existing Libyan commercial banks.

He said the bank was lobbying with the legislature, the General National Congress, to delay a law they passed earlier this year that bans interest on financial transactions and forces banks to become Sharia-compliant by 2015, a ruling that banks blame for high private credit costs.

In the meantime, the central bank was in talks with five local investor groups who are competing for three banking licenses that would be awarded soon, Elkaber said.

"This would create Sharia-compliant banks from day one," he added.

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