A man exchanges Libyan dinars for US dollars at a currency office in Tripoli, yesterday. Photo: Reuters

Libya is burning through central bank reserves and scrapping infrastructure projects to overcome its worst budget crisis in decades after the seizure of oil installations by armed groups has reduced the government’s income almost to zero.

Oil exports – Libya’s lifeline – fell to less than 100,000 barrels a day last week after militiamen shut down two large oilfields, compounding closures of ports in the east by rebel groups campaigning for regional autonomy.

Exports had exceeded one million bpd before armed militias, who helped oust Muammar Gaddafi in the 2011 civil war, started seizing oil facilities last summer to grab a slice of the country’s oil wealth.

The budget crisis threatens to accelerate Libya’s slide into instability as Tripoli’s fragile government struggles to impose its authority on a country where brigades of heavily armed ex-rebels challenge its efforts to introduce democracy.

Government has started tapping a special savings fund

Any immediate collapse of the state – at least in the next few months – looks unlikely. Libya accumulated more than $130 billion in foreign reserves during times of high oil prices.

But $16 billion have been spent since last summer, killing off plans to overhaul dilapidated roads, schools and hospitals.

“The situation is very, very bad,” said Abdelsalam Ansiya, a former lawmaker.

Parliament has failed to approve a budget for 2014 as there is no money to spend – oil and gas exports make up 95 per cent of income. Loss of government control of some land border crossings has hit customs duties, one of the only other non-oil sources of income. Few people pay taxes.

Oil revenues in the first two months of this year were 16 percent or less of the budgeted level, officials say. To keep the state running, the central bank has granted a $2 billion emergency loan. It had already given $800 million to the electricity ministry, which is struggling with power outages.

Diplomats expect the central bank to dip further into its foreign reserves because slashing the $53 billion budget is not an option for a weak government ill-equipped to take tough measures.

Almost 70 per cent of the 2013 budget was spent on public sector salaries and on subsidies for anything from wheat and gasoline to airline tickets and militia brigades on the state payroll – a hangover from the Gaddafi era meant to keep Libyans happy and social unrest under control.

To keep paying salaries the government has started tapping a special savings fund worth around 12 billion dinars ($10 billion), which was meant as nest egg for future generations, Ansiya said.