A deal on state spending can kickstart Libya’s political process

A renewed governance split in Libya is blocking progress on agreeing an electoral framework. Ending the standoff over state spending could break the impasse.

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The failure to hold scheduled elections in December 2021 derailed Libya’s political roadmap, heightening animosity between the Government of National Unity (GNU) – the country’s first unified government since 2014 – and the House of Representatives, its chronically divided parliament. The House of Representatives appointed a new government in February, the Government of National Stability (GNS), and says that the GNU must go. The GNU, however, says it will only leave following elections.

This impasse has dragged on, but reached a flashpoint on the evening of 16 May, as the designated prime minister of the GNS, Fathi Bashagha, entered Tripoli in an attempt to assume office and operate from the capital. The move sparked clashes between armed groups, resulting in Bashagha’s negotiated exit from Tripoli.

Aside from these developments on the security front, the renewed governance split is triggering familiar patterns of competition over resources. Without a budget law passed by the House of Representatives, the GNU is spending on the legal formula of one twelfth, meaning it is spending per month what was authorized in the most recent budget.

The principal advantage held by the incumbent government is its ability to spend and to maintain networks of patronage in order to secure its position

But the GNU is widely accused of spending off book through its emergency chapter of spending, exceeding the confines of one-twelfth. Rumours abound of the GNU using financial incentives to secure the backing of armed groups to help it remain in the capital.

In response, the House of Representatives has sought to starve the GNU of cash. It has pressured the National Oil Corporation (NOC) to freeze the transfer of funds to the Central Bank of Libya, and therefore keep it from reaching the GNU.

The NOC has its own issues with the GNU, complaining that it has received no funding to maintain its infrastructure or pay its burgeoning debts. These factors led the NOC to cease the transfer of funds to the central bank, ostensibly upon request from the House of Representatives.

In response, the United States has sought to create a ‘temporary financial mechanism’ to help rival parties reach agreement on mutually accepted state spending. This involves continuing to pay salaries and provide support to key sectors of the economy, such as electricity, water and the NOC, while shutting down expenditure on other chapters of the budget.

While these discussions developed, however, the GNU was able to pull off a fait accompli. Through the promise of a new (and unrealistic) NOC budget, combined with direct threats, it persuaded the NOC to transfer the $8 billion it was holding on to in its accounts to the Central Bank of Libya, giving the GNU much-needed breathing space.

The response from GNU opponents was swift. Yet another partial oil shutdown was soon implemented in April, costing Libya in the region of 550,000 barrels per day of production and $60 million per day amid high global oil prices.

But the GNU’s move is only a temporary fix. Agilah Saleh, the wily speaker of the House of Representatives, recently issued a statement in favour of freezing oil revenues. In mid-May, the United States issued a statement saying it also supported a freeze ‘until there is agreement on a revenue management mechanism’.

This dispute presents a window of opportunity for the international community. A functional financial mechanism agreed among rival Libyan actors could to a large degree bypass the debate over the need for yet another interim government and allow political negotiations to refocus on agreeing an electoral framework.

The principal advantage held by the incumbent government is its ability to spend and to maintain networks of patronage in order to secure its position. A mechanism that could place meaningful limits on such activities and establish reporting and oversight criteria would go a long way towards diffusing the situation. Such a framework would also establish clear expectations on Libyan state institutions.

It appears that horizontal accountability mechanisms among Libyan institutions must be combined with some form of vertical international oversight

While the diplomatic community has differing views on how effective such a mechanism would be, there is consensus that it is needed. Principal challenges include determining spending requirements for key sectors, a complex process when many sectors, such as healthcare, are in demonstrable need.

The perennial issue of salary payments to the Libyan Arab Armed Forces must also be addressed. These elements will require a level of international engagement and cooperation that has not been forthcoming thus far.

But the foremost challenge will be ensuring that the agreement comes with credible threats that whatever is agreed will be enforced. The question of who will oversee this arrangement, and how, is not certain. But it appears that horizontal accountability mechanisms among Libyan institutions must be combined with some form of vertical international oversight.

For, while the interdependence of Libyan actors may help to ensure compliance (e.g. if the deal is broken, oil would soon again be shut off) there will be a lack of trust that Libyan state institutions, such as the Audit Bureau, could oversee these arrangements alone. Without international commitment to support the enforcement of the budget mechanism, workarounds will inevitably be found.


At best, this mechanism will freeze rather than solve the conflict. To this end, it should only mobilize essential spending or the risk is it could become too comfortable for the existing elite.

Such a balance would create both space and greater incentives for elites to re-engage in meaningful discussions about the political roadmap towards elections. In this regard, the mechanism should not be seen as a substitute for the political process but an enabler of it.

Bashagha’s attempt to enter the capital illustrates that the current situation cannot be left to fester. As the international community considers how to reposition itself ahead of the expiry of the Berlin Conference roadmap in June, a robust and unified position behind the financial mechanism and a push for renewed political negotiations would be a wise move.