Libiya
Major macro economic indicators
| 2018 | 2019 | 2020 (e) | 2020 (f) | |
|---|---|---|---|---|
| GDP growth (%) | 17.2 | 2.5 | -41.0 | 21.0 |
| Inflation (yearly average, %) | -1.2 | 4.6 | 22.0 | 15.0 |
| Budget balance (% GDP) | 16.3 | 20.4 | -10.0 | -5.0 |
| Current account balance (% GDP) | 25.7 | 10.7 | -14.0 | 3.5 |
| Public debt (% GDP)* | 105.0 | 110.0 | 260.0 | ND |
(e): Estimate
(f): Forecast *General government gross debt
STRENGTHS
- Large oil and gas reserves (the largest in Africa)
- Very low external indebtedness
- Large foreign exchange reserves, sovereign funds
- Strategic positioning in the Mediterranean, proximity to Europe
WEAKNESSES
- Country divided in two: Tripolitania in the west, managed by the Government of National Accord, led by the Prime Minister of the Presidential Council, Fayez-al Sarraj, recognised by the international community; Cyrenaica in the east, supported by Marshal Haftar
- The south of the country (Fezzan) faces the proliferation of trafficking (human, arms, drugs) and animosity between Tuaregs and Toubous.
- Economic and financial fragmentation superimposed on political and tribal divisions
- Selective currency access for importers
- Deficient business environment (186/190 in the Doing Business 2020 ranking)
- Destruction of a large part of the country’s infrastructure
RISK ASSESSMENT
The public balance was plunged into an extreme deficit in 2020. Indeed, 55% of public revenues are dependent on oil. However, in 2020, oil revenues are expected to have accounted for only one-fifth of 2019 revenues. To limit the deficit, the GNA cut civil servants’ salaries by 20% and reduced its subsidies, particularly on fuel. Furthermore, the tax on foreign exchange sales introduced in December 2018 helped to slightly alleviate the pressure on public finances.
The deficit is financed by the Central Bank, but also by local commercial banks, which explains why most of the debt is domestic. In 2021, the resumption of production and the rise in oil prices will improve public accounts.
The 80% drop in exports (97% of which is made up of oil exports) explains a very large part of the huge current account deficit in 2020. In 2021, the lifting of the blockade and the rise in oil prices will allow a 198% increase in exports of goods according to the IMF. By contrast, however, imports are expected to pick up sharply. The structural deficit in services will remain significant given the country’s dependence on foreign companies to service its oil industry, while the primary income surplus resulting from investments held abroad will persist.
In 2021, the reduction of the current account deficit will alleviate the pressure on Libya’s foreign exchange reserves (USD 74 billion at the end of May 2020, more than 20 months’ worth of imports), which the central bank has used to try to maintain foreign currency supply to the market in 2020. Moreover, Libya has a sovereign fund estimated at USD 60 billion in 2011, which has since been frozen by decision of the UN.
The collapse in growth is explained by the near stoppage of the oil sector during the first three quarters of 2020, even though it accounts for 60% of GDP. The blockade of production was in fact due to the armed militias of the Libyan National Army. After 8 months of blockade, Marshal Haftar announced its lifting in August 2020. According to OPEC, oil production went from 1.1 million barrels per day in December 2019 to 107,000 between February and September 2020, a loss in revenue of 95.5% according to the National Oil Corporation. Since the lifting of the blockade in September, production recovered rapidly, to 1.2 million barrels per day in mid-November, and should continue to do so in 2021, provided no political crisis occurs. However, the degradation of the infrastructure will cost billions of dollars and will require the arrival of foreign investors, who are cautious given the situation in the country.
Aside from the problems related to the oil sector, household consumption (up to 80% of GDP in some years), affected by falling incomes and social distancing measures, fell by 15% in 2020 and is expected to rise by only 3% in 2021. Local private investment is expected to remain low due to the persistence of high uncertainties. The economy has also suffered from currency depreciation on the black market (54% in the first half of 2020) linked to the scarcity of foreign currency, which has widened the gap with the official exchange rate. With the boom in oil revenues, the depreciation should stop in 2021.
The attack on Tripoli between April 2019 and June 2020, the blockade of oil ports and terminals between January and September 2020, and the health crisis, have created the most severe crisis that Libya has faced since 2011.
Indeed, undermined by the political fractures that reappeared following the 2011 revolution, Libya is a divided territory. Two authorities are vying for power: the self-proclaimed Libyan National Army (LNA) of Marshal Khalifa Haftar in the East and the internationally recognised executive Government of National Accord (GNA) based in Tripoli in the West. Following an offensive against Tripoli launched by Marshal Haftar in April 2019, the country was plunged into a new period of open civil war between the two rival authorities, fuelled by interference from foreign powers (support for the GNA from Turkey and Qatar and for the LNA from the UAE, Russia, and Egypt). The battle of Tripoli ended in June 2020 with the expulsion of the LNA from the suburbs of the capital.
A ceasefire agreement, signed on 23 October in Geneva under the aegis of the UN, subsequently brought the fighting to a halt.
The United Nations Mission of Support to Libya (UNSMIL) confirmed in November 2020 that the two parties had agreed to hold parliamentary and presidential elections in December 2021. However, since the new form of the institutions has not been agreed upon, it is unclear as to which bodies Libyans will be asked to vote for. Moreover, while the Geneva Agreement provided for the withdrawal of foreign troops by 23 January 2021, the GNA indicated that the agreement did not concern Turkey and signed a new military cooperation agreement with Qatar.
Tunisia
Major macro economic indicators
| 2018 | 2019 | 2020(e) | 2021(f) | |
|---|---|---|---|---|
| GDP growth (%) | 2.7 | 1.0 | -9.0 | 4.5 |
| Inflation (yearly average, %) | 7.3 | 6.7 | 5.5 | 5.5 |
| Budget balance (% GDP) | -4.4 | -3.3 | -11.0 | -8.0 |
| Current account balance (% GDP) | -11.2 | -8.5 | -7.0 | -7.5 |
| Public debt (% GDP)* | 77.3 | 72.5 | 89.0 | 91.0 |
(e): Estimate
(f): Forecast *General government gross debt
STRENGTHS
- Fully democratic system with freedom of expression
- Increasing integration of women in political and economic
- Governance positions
- Support from international, multilateral, European and Arab donors
- Economy in the process of diversification
- Proximity to the European market and association agreement with the EU
- Tourism potential
- Natural resources (phosphates and hydrocarbons in particular)
WEAKNESSES
- High social and geographical inequalities, high unemployment, especially among young people, leading to increased social unrest and demonstrations.
- Structural imbalance in the public accounts (public enterprises in deficit, wages = 60% of primary expenditure, high weight of subsidies) and yet deficient public services
- Economy strongly impacted by the COVID-19 crisis
- Fragmentation of political representation reflecting that of society and learning about democracy
- Tourism confronted with security problems, increased foreign competition, lack of investment, and little diversified in both range and themes.
- Porous border with Libya, source of insecurity
RISK ASSESSMENT
The political scene remains turbulent. The government of Prime Minister Hichem Mechichi, an independent who took office in September 2020, is the third since the October 2019 elections. Government instability reflects both political fragmentation and the opposition between the secularists and clerics (represented by Ennahdha, the conservative Islamist party, which holds 52 seats out of 217) in the Assembly of the Representatives of the People, which requires majority votes. Added to the quarrels between President Kaïs Saïed, the prime minister, and the Assembly, this complicates the handling of the economic and social problems, and the persistent and acute public service deficiencies in the governorate of Tataouine (unemployment > 30%, but 40% of Tunisia’s oil and 20% of its gas) in the south of the country, and the breeding ground for numerous strikes, blockades of industrial sites, and terrorist acts.
Under these conditions, the restoration of public accounts, probably with the conclusion of a new agreement with the IMF and tied foreign aid, will be difficult. Early elections in 2021 are a possibility.
Fiscal consolidation, which was well advanced at the end of 2019 under the IMF’s Extended Credit Facility, whose four-year term expired in May 2020, reversed in 2020 with the onset of the crisis. While revenues fell by about 20%, expenditure increased by 10% despite cuts in non-essential spending.
The deficit widened significantly, requiring the increased involvement of multilateral and European partners, alongside increased recourse to the domestic market and central bank financing. In 2021, the deficit is expected to decline only slightly, as some revenues will be delayed by the crisis, while some aid will need to be extended and some spending, such as payments to suppliers and arrears to public enterprises, can no longer be postponed.
The financing requirement, including the deficit and debt amortisation (27% of GDP), should be covered overwhelmingly by external sources, reflecting a debt at 67% external and 71% in foreign currency (September 2020). There is also talk of a national loan and an appeal to expatriates.
The ratio of the current account deficit to GDP continued to fall in 2020, despite the fall in GDP. This is because imports, linked to domestic demand, have fallen more than exports of goods, allowing the trade deficit to be reduced from 14 to 10% of GDP. However, the surplus in services linked to tourism (3% of GDP in 2019) has vanished. Concomitantly, remittances from expatriates (5%) have held up fairly well and dividend and interest payments to foreign investors (2%) have varied little. The current account balance should change little in 2021.
While exports of goods are expected to recover faster than imports (energy, which constitutes a third of them, will fall by 20% with the increased output from the Nawara gas field), tourism receipts will be anaemic and the interest on the debt will increase slightly. The inadequacy of foreign investment (between 1 and 2% of GDP) is forcing the State to go into debt, with overlapping public and external financing needs. Foreign exchange reserves approached the equivalent of 5 months of imports at the end of 2020. Despite the (effective) interventions of the Central Bank to strengthen the dinar, they have held up well thanks to external aid.
In 2021, fewer interventions are expected and the erosion of the exchange rate will resume.
The COVID-19 crisis, through its internal and external lockdown measures, as well as the fall in European demand, hit an already anaemic economy hard, dragging it into a deep recession. 2021 is expected to bring a significant recovery, but not commensurate with the fall in activity recorded the previous year. Household consumption (70% of GDP), already weak, has been badly affected by rising unemployment and falling incomes. It should pick up modestly in 2021.
Similarly for commercial services (nearly 50% of GDP), with tourism at the forefront. The 60% drop in 2020 in its revenues, which contribute 14% to GDP and employment, should only be marginally erased, which will depend, in any case, on the control of the pandemic. Accommodation and catering, but also transport and crafts, will therefore continue to suffer. The manufacturing industries (16% of GDP), in particular textiles, clothing, and automobile and aeronautical parts, should grow in line with European demand.
On the other hand, the other industries (hydrocarbons, phosphates and derived fertilisers, plaster) could still suffer from strikes and blockages, as was the case in 2020 when oil and gas production fell by 8%. However, rising oil prices and the firmness of fertiliser prices will be good for export earnings.
More broadly, exports, which have moved from 50% to around 40% of GDP between 2019 and 2020, will, above all, have to improve for goods, even though the reopening of the border with Libya in November 2020 will have a favourable impact on tourism, especially medical tourism. Faced with this mixed recovery, investment (15% of GDP), which fell sharply in 2020, will only timidly resume.
Agriculture (12% of GDP), which has been affected by unfavourable weather conditions and an erratic supply of fertilisers, should show an increase. Olive oil exports, one of the rare sectors not to have experienced the crisis, will continue to prosper.