A lasting peace deal remains off the cards in Libya over the near term, as rival eastern and western factions are unable to agree on the structure of a new unity government – specifically the role of Field Marshal Khalifa Haftar (of the Libyan National Army) within it.
Even if an agreement is eventually reached, security risks will remain elevated on the ground for years to come, given the highly localised nature of the conflict and the weakness of Libya's state structures.
While rising oil production will boost growth in Libya over the near term, a sustained economic recovery will remain off the cards until a lasting, comprehensive peace deal is reached. We maintain our view that the country's economy will not surpass its nominal 2012 levels for at least another six-to-seven years.
Libya's fiscal balance will remain firmly in deficit over the coming years, as widespread instability prevents oil output from reaching the levels needed to cover still-large public sector wage and subsidy expenses. With few other options available, the country's authorities will continue to fund shortfalls through the issuance of domestic debt and the depletion of foreign reserves.
As a result of the ongoing conflict, a significant degree of productive capacity (both physical and human) throughout the Libyan economy has been lost. Road, housing and utility infrastructure have suffered considerable damage and will take years to repair under even the most stable of political environments.