Libya’s economy, which remains largely state controlled and heavily dependent on the oil sector, grew solidly in 2003—04, reflecting favorable developments in world oil markets, the IMF said in its annual economic review. The fiscal and external current account balances registered large surpluses, and international reserves rose sharply. Since the lifting of international sanctions, the pace of reforms, aimed at boosting private sector activity, has picked up somewhat. However, reforms continue to be implemented in an ad hoc and nontransparent manner.
The IMF Executive Board welcomed the authorities’ increased reform efforts but noted that much needs to be done to transform the country into a market economy. Libya’s large surpluses provide a good opportunity to speed up economic reforms, and the early creation of an interministerial economic team should help plan, coordinate, and sequence reforms.
In the short run, policies should focus on developing market-based monetary instruments, restructuring the banking system, liberalizing prices, strengthening budgetary management and procedures, and reforming the subsidy system. The Board encouraged the authorities to reassess their one-sector-at-a-time approach to reform and to seek greater economic diversification.
A prudent medium-term fiscal framework would help reduce the large nonoil deficit by strengthening the nonoil tax base, including reducing tax exemptions and streamlining spending. The authorities should also move toward greater budget transparency and consolidate in the budget all extra-budgetary operations. New banking legislation has been passed that grants the central bank greater independence.
Given Libya’s severe human resource constraints and weak institutions, the Board supported the authorities’ request for technical assistance in support of economic and financial reforms, taking into consideration the country’s absorptive capacity.
|(percent of GDP)|
|Overall fiscal balance||14.4||-1.2||10.2||10.6||18.8|
|Nonhydrocarbon fiscal balance||-17.0||-30.4||-30.0||-36.3||-33.6|
|External current account balance||22.5||12.3||0.6||15.4||25.6|