May was another extremely chaotic month for Libya. Libya’s General National Congress (GNC) appointed Ahmed Maetiq as the country’s new prime minister but his predecessor, PM Abdullah al-Thinni, refused to hand over power and forces aligned with Khalifa Haftar, a retired general, launched attacks against Islamist bases in Benghazi and against the GNC headquarters in Tripoli. Mr Haftar intends to dissolve the GNC and hand over power to a constitutional assembly that was elected in February. Meanwhile, eastern federalists, who in April agreed to stop their months-long blockades of oil terminals, refuse to recognise the new Maetiq government, which does not bode well for resumption of the country’s oil production and exports.

Impact on country risk

Increased uncertainty and insecurity are further impacting the country’s already strained business environment, as is indicated by various events. Last week, the US warned its citizens to leave the country and Libya’s Central Bank announced an adaptation of bank working hours related to the security situation. A few days earlier, the chairman of Libya’s National Oil Corporation (NOC) – who had headed the NOC since 2011 – resigned, for unclear reasons. More generally speaking, the events of the past month demonstrate the importance of addressing Libya’s challenges, but also the difficulty of doing so. As we have stated before, these challenges include the increasing socio-economic frustration among the population, high security risks, dependency on powerful armed militias (the government lacks a monopoly on the use of legitimate violence) and the continued absence of a permanent constitution. So far, it remains unclear how the situation will further develop and payment risks remain somewhat mitigated by Libya’s large foreign exchange reserves and the fact that important damage to energy installations has been avoided. However, there is a high risk that the recent events will lead to more countrywide clashes in the coming days or weeks.

Analyst: The Risk Management Team, r.cecchi@credendogroup.com