Repercussions of the shadow economy phenomenon on the Libyan economy during the period (2000-2023): An analytical study

Abstract

This study addresses the impact of the shadow economy on GDP and sustainable development in Libya.It aims to estimate the size of this economy from 2000 to 2023 and analyze its quantitative effects on GDP. Additionally, it seeks to understand its implications for the effectiveness of institutions and their ability to implement comprehensive development policies. The research aims to provide an in-depth analytical perspective on the relationship between the expansion of the shadow economy and the decline in economic performance, focusing on the institutional and financial dimensions that reinforce this phenomenon, and proposing realistic solutions to address it within a comprehensive national reform framework. The study relied on two main methodologies:the descriptive-analytical approach to understand the historical and social context of the shadow economy in Libya,and the quantitative approach to measure its size using the monetary approach,specifically the ratio of currency in circulation to demand deposits (SCR),based on data from the Central Bank of Libya and official economic publications.This method allowed for quantitative estimates of the informal economy's size over the study years.The research findings indicated that the shadow economy constitutes a significant portion of economic activity in Libya, ranging between 63% and 93.9% of GDP, with an average exceeding 70%.

This is attributed to weak regulatory institutions, political division, and a preference for cash transactions outside the banking system.

Furthermore, the informal economy contributes to the erosion of tax revenues, hinders sustainable development plans, undermines transparency, and encourages institutional corruption, limiting the state's ability to formulate and implement effective economic policies. The study concluded with a set of recommendations, the most notable of which include: the necessity of reforming the tax system and simplifying its procedures, enhancing financial inclusion and transitioning to electronic payments, developing a unified economic information system, combatingcorruption, and integrating informal activities into the formal economy through encouraging regulatory and financial incentives.