To the many existential threats facing Libya, it is now possible to add another: the oil-rich nation may be going broke.
Four years after its uprising against dictator Moammar Gaddafi, the North African country is buffeted from all sides: two competing governments vie for power and resources; militias and armed gangs impose their own capricious justice; targeted attacks have driven away investors and diplomats.
The country’s slow-motion collapse came to a head this week, when Islamic State militants were shown executing 21 Egyptian Christians on a Mediterranean beach. The next day, Egyptian warplanes pounded militant targets in retribution.
But Libya faces another, less visible, hazard, one that has not yet focused attention in Western capitals but that threatens to cause further — and possibly far deeper — turmoil.
Economists and Libyan and U.S. officials say Libya is burning through its international reserves at an alarming rate as the country scrambles to pay a huge bill for wages and subsidies without the benefit of normally ample oil revenues, virtually the country’s only source of income.
Last year, Libya depleted $27 billion of its reserves, which now stand around $81 billion, according to the International Monetary Fund (IMF). Unless fighting lets up this year, allowing wider oil exports to resume, the country could use the same amount this year.
“Libya is running out of money,” a U.S. official said, speaking on condition of anonymity to discuss another country’s finances. “What happens when Libya is bankrupt? ... When they have no hard currency, they can’t buy food, so you have a massive humanitarian crisis.”
The situation is startling for an OPEC member country perfectly situated to export its light sweet oil to nearby Europe. The country’s economic lifeblood, oil accounts for almost 100 percent of Libyan exports. Prior to 2011, oil output stood around 1.6 million barrels per day.
Now, as confrontations continue between an array of armed factions seeking to secure their share of oil revenues, production hovers around 200,000 to 300,000 barrels per day. Much of the oil still flowing comes from offshore sites.
At the same time, global oil prices have fallen by roughly half since June, reducing Libya’s revenues even further.
Libyan officials still have to reckon with a massive yearly bill for government wages, which U.S. officials say account for 97 percent of all salaries paid in the country, and generous subsidies for everything from food to fuel. What’s more, the vast, arid country must import virtually everything, from milk to spare parts.
Economists say a country’s reserves should be treated as a savings account rather than a piggy bank. But Mohammed El Qorchi, an IMF official who oversees the fund’s dealings with Libya, said that the country is going through its reserves at a rate of about $2 billion to $2.5 billion a month.
“Usually we would prefer not to touch these reserves, because they are resources that should be used by future generations,” Qorchi said. “But that’s not the case now.”
Other fiscal and economic indicators are dire: In 2014, gross domestic product contracted by 20 to 30 percent, officials said, and the fiscal deficit was roughly 50 percent of GDP. This year, the IMF believes the deficit could be at least as big.
“This is a very serious situation,” Qorchi said.
A Western diplomat, also speaking on condition of anonymity, said that if the situation continues “there will definitely be a crunch point.”
Libya’s Central Bank has issued warnings of its own, calling for officials to take action to contain “the growing fiscal crisis,” including stepping up tax collection, reviewing subsidies and streamlining diplomatic missions overseas.
But the Central Bank itself has become a symbol of Libya’s fractured nature. In Tripoli, the bank is headed by Saddek Elkaber; across the country, a rival government says that Elkaber’s deputy, Ali Hebri, is the rightful Bank governor. Neither official could be reached for comment.
How long Libya would be able to sustain itself using reserves remains a matter of debate. Auguste Tano Kouame, a World Bank official, said Libya could remain afloat for “another couple of years.” Economists say Libya is starting from a high reserve level compared with other countries.
“The fiscal situation is very worrying . . . but the stock of reserves they have from the past gives them some breathing space,” he said.
The government, however, could run through savings much sooner if some of the reserves are tied up in financial instruments. Countries usually try to invest at least a portion of their reserves in safe assets. Officials at the World Bank and IMF said they did not know how much of the reserves might fall into that category.
A halt to wage payments, including salaries for the militias that have proliferated since 2011, would be a calamity. In such a situation, it’s likely neither global markets nor multilateral lenders would extend a lifeline to a nation sinking deeper into civil war.
The financial concerns come as the United Nations attempts to build consensus around a hoped-for government of national unity.
“Now the macro financial situation is becoming at the heart of the debate, and this is going to complicate the situation,” Qorchi said. “So in addition to all the fighting, in addition to all the political wrangling, now there is another issue that they have to take into consideration.”
Some Western officials are hoping the situation will be a wake-up call for the feuding sides, prompting them to compromise. There is also talk of putting Libya’s reserves or revenues in an internationally administered escrow account to shield it from misuse, which Karim Mezran, a Libya scholar with the Atlantic Council, said should be “a last resort.”
If the political divisions are healed, Libya might be able to quickly soar back to full oil production. So far, the fighting has inflicted only modest damage to oil facilities, said Jamie Webster, who follows oil markets at analytics firm IHS.
Webster said he expects production will remain around the same low range this year, below forecasts from the World Bank and IMF. “We’ve revised down expectations on Libya production,” he said, “simply because things are not holding together, for lack of a better word.”