TRIPOLI, May 10 (Reuters) - Libya’s U.N.-backed government and the central bank in Tripoli have agreed on public spending of 42 billion Libyan dinars ($31 billion) for 2018, officials said on Thursday, up from 37 billion last year.
The Government of National Accord (GNA) based in Tripoli has struggled to make an impact as it is challenged by various armed groups and a rival administration in the east linked to military commander Khalifa Haftar.
The central bank in Tripoli has been working with the GNA to keep public funds flowing despite the administration never having won approval from the internationally recognised parliament based in the east, which is backing Haftar.
GNA and the central bank agreed on spending of 42.511 billion dinars as “financial arrangements” for 2018, a GNA statement said.
It did not provide a comparison for last year but officials in December 2016 had put the 2017 volume at 37 billion dinars.
Despite that, the budget deficit will fall this year, Fathi Majbre, a member of the Presidency Council headed by Prime Minster Fayez al-Sarraj, told reporters.
The GNA said 24.5 billion dinars will be spent on salaries, 6.5 billion dinars on subsidies for fuel and other items, 4.7 billion for investment and 6.7 billion for other expenditures.
Libya tends to spend the entire budget on a bloated public workforce and subsidies with very little left to improve ailing state services.
The welfare state has become unsustainable as oil production is volatile due to blockages of fields by armed groups though output last year stabilized at around 1 million barrels a day.
Still that is less than the 1.6 million bpd pumped before 2011 when Muammar Gaddafi was toppled.
The economic situation remains chaotic with the central bank keeping the exchange rate at 1.3 dinar a dollar while on the black market the rate is around 6.
Many Libyans have to queue at banks to get money as banknotes have become scarce, as the economy is controlled by armed and powerful groups hoarding money.
When asked about the liquidity crisis Majbre said: “The issue...is related to the reforms needed by the macro economy in Libya and is not necessarily related to the government budget.”
Libya has a rival government based in the east with its own central bank. But the Tripoli headquarters control oil and gas revenues and pays out public salaries.
$1 = 1.3515 Libyan dinars Reporting by Ahmed Elumami Writing by Ulf Laessing