Libya: Country Economic Forecast: 03 May 2012

Ahead of the elections scheduled for June, the NTC continues to face a huge challenge in uniting the country. Regional and tribal tensions have been building since the overthrow of Colonel Gaddafi and the main task is to disarm the numerous militias currently operating in the country but the government forces often find themselves out-gunned. The elections in June will lead to a Public National Conference and an interim government, followed by a new constitution, and then fresh elections. But there are still many uncertainties, especially with signs that the oil-rich east of the country may be seeking greater autonomy. After 42 years of dictatorship, the road to democracy will be bumpy, as is the case in Iraq and Egypt. With most formal business activity having come to a virtual standstill in 2011 and oil output estimated to have fallen by 70%, we still think that GDP fell by about 40% last year. But oil output is now rebounding strongly, reaching 1.25m b/d in Q1 this year and media reports suggest 1.5m b/d in April. But given the political uncertainties, which will deter FDI, business activity and tourism, full and lasting recovery will take much longer. We still expect GDP to grow by about 30% this year, which would leave it well below the 2010 level. We estimate that the 70% drop in oil exports last year will have led to a small current account deficit. But the recovery under way in oil output and still-high oil prices could see a return to sizeable surplus in 2012.