Libya ex­pects $8bn deficit in 2014 af­ter oil shutout

Daily Trust - - REUTERS -

Libya plans deep aus­ter­ity mea­sures to tackle a budget deficit ex­pected to reach up to 10 bil­lion Libyan di­nars ($8 bil­lion) this year due to rebel block­ades which have stran­gled oil pro­duc­tion, a se­nior law­maker told Reuters.

Mo­hammed Ali Ab­dal­lah, who heads par­lia­ment’s budget com­mit­tee, said this year’s deficit could be cov­ered by budget sur­pluses ac­cu­mu­lated in past years, a cen­tral bank loan and the pos­si­ble is­suance of govern­ment bonds.

How­ever, he out­lined spend­ing cuts which are likely to be highly un­pop­u­lar with Libyans, used to sub­sidised bread loaves cost­ing two U.S. cents, as the govern­ment and par­lia­ment strug­gle to con­trol mili­tias which helped oust Muam­mar Gaddafi in 2011 but kept their guns to claim a share of the oil wealth.

Par­lia­ment plans to freeze pub­lic salaries, halt new de­vel­op­ment fund­ing and slash the num­ber of sub­sidised food and ba­sic prod­ucts, Ab­dal­lah told Reuters in an in­ter­view.

“Our budget deficit is look­ing at around 9 to 10 bil­lion Libyan di­nars in 2014,” he said.

Libya tra­di­tion­ally runs large sur­pluses thanks to oil ex­port rev­enues. But last year the budget slid into an eight bil­lion di­nar deficit when a wave of protests cut into the OPEC na­tion’s out­put.

Nine months of block­ages at oil fields and ports have re­duced oil pro­duc­tion to 220,000 bar­rels a day (bpd) from 1.4 mil­lion bpd be­fore the trou­ble be­gan last sum­mer.

Ear­lier this month the govern­ment reached a deal with rebels to wind down their oc­cu­pa­tion of four oil ports, im­posed to de­mand a greater share of Libya’s oil wealth. Tankers have al­ready started load­ing at one port. But the shut­down has cut oil rev­enues to less than $4 bil­lion since the start of this year - less than 20 per­cent of what was bud­geted, said Ab­dal­lah.

Libya has no need to press the panic but­ton yet as the cen­tral bank sits on more than $110 bil­lion in for­eign re­serves. A fund of pre­vi­ous sur­pluses worth be­tween 10 and 17 bil­lion di­nars was avail­able, plus un­spent oil rev­enues held by the cen­tral bank to­talling 17 bil­lion.

“The third op­tion - which I hope we don’t have to go to be­cause we are not ready for it - is to is­sue some govern­ment (Is­lamic) bonds,” Ab­dal­lah said.

“This is an op­tion which we are study­ing with the IMF and World Bank right now. We could look at do­ing a limited bond is­suance to lo­cal pri­vate and pub­lic banks.”

Ab­dal­lah felt that Libyan banks, which are largely state-owned and in­ef­fi­cient, were not yet ready for a mar­ket in govern­ment bonds based on Is­lamic prin­ci­ples.

Libya hopes to raise oil pro­duc­tion af­ter the east­ern port of Hariga was re­opened un­der the deal with rebels who want greater au­ton­omy and a share of oil rev­enues.

Out­put could rise by 400,000 bpd in the next few weeks thanks to Hariga’s re­open­ing, bring­ing it close to a goal of hit­ting 600,000 bpd by the end of June un­der a budget pro­posal, Ab­dul­lah said.

By the end of the third quar­ter pro­duc­tion needs to reach 1 mil­lion bpd to reach the budget tar­get and pay back the cen­tral bank loan, an un­cer­tain plan as the govern­ment is weak and parts of the coun­try re­main out of state con­trol.

A worker main­tains oil pipe­lines at the Zueitina oil ter­mi­nal in Zueitina, west of Beng­haz

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