Oil Revenue Shocks and Fiscal Performance in Libya

Abstract

This paper examines how oil-price and oil-production shocks are associated with Libya’s fiscal balance during 2010–2023. A parsimonious dynamic specification, estimated with HC3 heteroskedasticity-consistent inference, distinguishes changes in world oil prices from domestic production disruptions. Both shocks have positive, statistically significant contemporaneous coefficients, and the fiscal balance exhibits substantial persistence. The production coefficient remains relatively stable when potentially influential years are excluded individually. By contrast, the implied long-run multipliers are imprecisely estimated, with confidence intervals that include zero. Residual and specification diagnostics do not reject their respective null hypotheses, while recursive cumulative-sum evidence detects no parameter instability; these tests have limited power in a short annual sample. The findings suggest that fiscal planning in Libya needs to account separately for international price volatility and interruptions to domestic oil output.