Admittedly, the growth comes after a 62% contraction during the bloody civil war that ended strongman Muammar Gaddafi's 40-year rule, but the country's rapid return to form has been led purely by oil production.Nevertheless, the country can hardly be considered a model post-Arab-Spring state. Its biggest failing to date is the rampant lawlessness that continues to drive investors away.
The International Crisis Group (ICG) says that while the country faces a number of challenges, judicial system is crucial to the stability of the country.There is a grave danger that Libya's Arab Spring revolution is tossed aside as insecurity and insurgency puts a cork in the aspirations of the Libyan people.
The ICG notes that armed groups that patrol the vast country continue to take the law into their own hands, assassinating presumed Gaddafi loyalists or terrorizing their communities for profit or political gain.The assassination of the US ambassador to Libya and other American officials underscore the dangers of simmering Libyan insurgency. The Libyan authorities, which insisted on leading the investigation, have been unable to apprehend the perpetrators to date, underlining their lack of competency.Distrust of the government has also compelled many regional commanders to take legal and security measures in their own hands and run their own prison and torture camps.
Stable governance needed
The absence of rule of law can hurt Libya as it looks to build its economy on the major plank that is the oil sector. Crude output has ramped up to 1.5 million barrels per day, close to the 1.6 million to pre-civil war levels and is expected to exceed it this year.
Non-hydrocarbon growth is expected to beat hydrocarbon's growth over the next two years, but makes up less than 5% of exports.
The country's non-hydrocarbon budget deficit, which is a more accurate measure of the country's fiscal position, has widened from 139.6% of non-hydrocarbon GDP in 2010 to 191% in 2012, says the IMF.
Meanwhile, 64% of the country's expenditure is spent on salaries and subsidies, which leaves little for the massive reconstruction works that need to be carried out across all facets of the Libyan economy - from utilities to basic healthcare and education, as well as the development of natural resources and other sectors.With USD 65 billion in its sovereign wealth fund, financing is not a major short-term issue for the country. This was underlined when the country offered to cut a USD 2 billion check for neighboring Egypt as a deposit."By leveraging its sovereign wealth fund, the government would have the capacity to create a fund for critical infrastructure," said a Chatham House report. "The money could be spent on developing new airports, ports, et cetera. Although Tripoli remains in need of development, many other cities currently lack key infrastructure."But without stability and security, those funds can easily be frittered away on people-pleasing subsidies and recruiting the disaffected youth in the public sector.While Libya has benefitted from high crude prices, its excessive dependence on the commodity could spell trouble for the economy's fortunes. Libya's breakeven budget prices have risen from USD 67 per barrel in 2010 to USD 74 in 2012. While Brent crude prices continue to hover around the three-figure mark, some analysts are worried about prices trending lower on weaker global demand.
That could hurt Libya's finances as it needs high crude price to foot an extensive reconstruction bill.
"Over the medium term, the authorities should address issues including institutional capacity building, improving the quality of education, rebuilding infrastructure, putting in place an efficient social safety net, financial market development, and reducing hydrocarbon dependency," the IMF said.Quashing vigilante justiceThe security situation in Libya was complicated immediately after the death of Gaddafi, when the interim government led by the National Transitional Council made the mistake of giving armed groups the freedom to carry out policing activities and the green light to use their own discretion to snuff out Gaddafi loyalists.
Prime minister Ali Zeidan is trying to change that policy and sees armed group as a menace undermining the state's rule."He and his justice minister have announced a policy of zero-tolerance toward arbitrary detention or revenge assassinations and made it a priority to transfer into state custody thousands of arbitrarily detained individuals," the ICG notes.
"State security forces have emptied several illegal detention centers in the capital and the legislature passed a law criminalizing torture and abductions."
But attacks on the PM and justice minister's offices suggest that the groups will not go down without a fight.
To win them over, the government will have to demonstrate that it can address security issues and restore confidence in the judicial system and state police.
"At the same time, armed groups - even those hailed as heroes of the uprising - will need to be held accountable for their actions as well; justice for victims of yesterday's crimes must go hand-in-hand with justice for victims of today's."
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