Libya 2025: Turning Oil Wealth into Sustainable Growth Amid Deep Governance Strains

Libya’s 2025 outlook reveals a resource-rich nation constrained by political fragmentation, fiscal instability, and overwhelming dependence on oil, despite significant potential in human, natural, and renewable capital. The report argues that only deep governance reforms, economic diversification, and stronger institutions can convert Libya’s wealth into sustainable, inclusive development.

Libya enters 2025 at a decisive moment, portrayed through research by the African Development Bank, IMF, World Bank, UNICEF, UNICRI, and national bodies such as the Central Bank of Libya and the Ministry of Health. Their combined analyses reveal a resource-rich nation constrained by institutional fragility. The Country Focus Report 2025 shows that Libya’s fortunes remain overwhelmingly tied to oil, which continues to dictate macroeconomic cycles and public finances. After a 0.4% contraction in 2024 due to oil field closures, the economy is projected to rebound strongly, growing 12.4% in 2025 before stabilizing at 4% in 2026. Yet this recovery rests on a delicate foundation of political stability and global oil market trends rather than structural transformation.

Oil Wealth, Fiscal Strain

Oil still accounts for 97% of Libya’s export earnings and more than 90% of government revenue. Production averaged 1.09 million barrels per day in 2024, below pre-2011 levels and far beneath Libya’s 3-million-barrel potential. This dependence fuels volatility: in 2024, the fiscal deficit ballooned to nearly 25% of GDP after a surplus the year before. Public spending remains dominated by salaries, subsidies, and administrative costs, which consume more than 70% of expenditures. Without a unified national budget since 2014, the country’s fiscal management is fragmented and opaque. The Central Bank’s attempts to stabilize the dinar, including foreign-transaction fees and a 2025 devaluation, have been undermined by the thriving parallel currency market. Inflation remains modest at around 2%, but monetary pressures linger.

The Weight of Development Needs

Even with substantial reserves that could cover nearly three years of imports, Libya’s development needs far exceed current capacity. The report estimates that USD 39.3 billion per year will be required until 2030 to rebuild infrastructure, expand renewable energy, modernize agriculture, and revive public services. Domestic resource mobilization is alarmingly low: tax revenue contributes just 2% of government income, one of the lowest ratios regionally. Large tax exemptions, weak enforcement, political fragmentation, and a vast informal sector severely limit fiscal capacity. Outdated national accounting systems, last updated in 2013, further obscure economic realities and hinder strategic planning.

Untapped Capital: Human, Natural, and Private

Libya’s natural capital, valued at USD 386.7 billion, is dominated by hydrocarbons but also includes immense solar potential, wind resources, cropland, fisheries, and significant mineral deposits. Yet renewable energy remains largely unexploited despite more than 1,600 GW of solar potential. Human development indicators show progress, high enrollment rates, declining maternal mortality, and an HDI of 0.721, but skills mismatches, limited vocational training, and youth unemployment above 23% weaken productivity. Regional disparities persist, and healthcare access remains inconsistent amid degraded facilities and staffing shortages.

The private sector, comprising an estimated 4%–15% of the economy, is constrained by limited infrastructure, scarce financing, and competition from generous public-sector employment. Most businesses are small, informal, and concentrated in retail and basic services. Nonetheless, opportunities exist across renewable energy, agribusiness, free-trade zones, construction, and digital entrepreneurship. The financial system remains shallow: banks sit on large liquidity surpluses but lend minimally; non-performing loans remain high; and nearly a third of currency circulates outside formal institutions. The reopening of the stock exchange in late 2023 is a symbolic milestone, but capital markets remain nascent and underregulated. Illicit financial flows, estimated at USD 1.2 billion annually, continue to drain the economy.

Governance: Libya’s Central Challenge

Governance stands out as the single most significant obstacle. Libya ranks 173rd of 180 countries on the Corruption Perception Index. Fiscal laws, commercial regulations, and investment frameworks are outdated; property rights are uncertain; contract enforcement is unreliable; and data systems are fragmented. Public-private partnerships lack a modern legal framework, constraining major infrastructure investment. Decentralization initiatives remain stalled due to institutional fragmentation and resource shortages. Strengthening the rule of law, through judicial independence, transparent budgeting, AML/CFT reforms, and modernized tax and investment legislation, is identified as essential for restoring investor confidence and unlocking domestic capital.

Despite deep challenges, the report maintains cautious optimism. Libya’s natural endowment, strategic location, reconstruction needs, and youthful population give it an opportunity to convert current wealth into long-term prosperity, if governance stabilizes and institutional reforms take root. The country’s future will depend not on the size of its oil fields but on the strength of the systems built around them.