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Libya Puts Ministries Under Special Budget Rules After Oil Revenue Slump

Source: Reuters 2/24/2014, Location: Africa

Libya has put some government departments under special spending rules as a slump in oil revenue has hampered drafting a budget for this year, officials and experts said, highlighting the dire situation of its public finances.

A wave of protests at oilfields and ports have knocked oil production down to 230,000 barrels per day (bpd) from 1.4 million bpd in summer, which has hit public finances as oil exports are the sole foreign currency earner.

Western powers worry Libya could slide into instability as militias who helped topple Muammar Gaddafi in 2011 keep their guns to seize oilfields or ministries at will to make political and financial demands.

Some ministries have started to struggle to pay their bills as parliament has not yet approved a budget for 2014, a government minister said on Sunday. These have been now put under a special budget procedure called 1/12 which allows them to continue spending one month at a time, the government said.

Under this rule the ministries get a sum based on last year's average monthly spending to keep basic services running, said Abdelsalam Ansiya, who until this month headed parliament's financial committee.

But he said even this approach was problematic because there was no budget approved to back up the payments.

The government will also fund such spending with money originally earmarked for infrastructure projects. "So a project will stop because of the limits of funding available," he said.

But any cut in infrastructure projects risks fuelling social tensions as Libya needs new roads, universities and schools damaged during the 2011 uprising. Infighting between government and parliament has blocked payments for several projects.

The government has said parliament needs to approve the 2014 budget but Ansiya said the real issue was that it was difficult to put together a budget due to the loss of oil revenue.

Slashing spending is not really an option because more than half of the $55 billion budget goes on public salaries and subsidies, measures meant to prevent dissent among the people.

Husni Bey, chairman of private conglomerate HB Group, said in a recent interview Libya had started suffering dollar shortages as annual oil revenue would slump to as low as $20-40 billion if oil protests continued. Last year's oil exports brought in around $50 billion.

He said the government could use foreign cash reserves which he put at $60 billion but at some point the central bank would have to consider a devaluation of the Libyan dinar.

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