Libya's Shadow Economy Is a Growing Threat, Says Mercy Corps

June 1, 2017

A new report details the unregulated economy's "vicious circle" on civilians

PORTLAND, ORE. – A dangerous black market is growing across Libya that disproportionately affects an already vulnerable population and threatens to further destabilize the fragile economy. That’s according to a new report out from the global organization Mercy Corps.

“A shadow economy is corroding Libya and becoming increasingly intractable,” says Giovanni Sciolto, Mercy Corps’ team leader in Libya. “It’s potential to jeopardize the overall health of Libya should not be underestimated.”

Libya has been in a state of turmoil since the overthrow of longtime leader Muammar Gadhafi in 2011. The country has since seen a drop in its gross domestic product, drastic depreciation of the Libyan dinar, severe liquidity shortage and rapid inflation. As a result, basic commodities are becoming progressively unaffordable; the price of one loaf of bread is now five times higher than it was in 2014.

The shadow economy – which is generally characterized by work done for cash, taxes not paid and regulations not followed – has grown in response, a force which both feeds on the liquidity crisis and exacerbates it. Estimates show that more than half the money circulating in Libya now moves within the informal sector. In addition to soaring food prices, civil and social services have suffered in its wake. Public health facilities often lack medical equipment and medicine. Expensive private clinics – out of reach for many people – are often the only option. Even citizens who attempt to stay in the formal economy can be pushed into coping strategies that involve the black market.

“While economic hardship is felt across the social spectrum, it disproportionally impacts vulnerable communities who are already dealing with significant challenges such as armed conflict and deterioration of security in several parts of the country,” says Sciolto. The report calls on policymakers to address the crisis through a number of strategies, including working with financial service providers to create more transparency and accountability. “There are known solutions to this problem,” says Sciolto. “What we need now is to make those solutions a reality.”

Download the report here.

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