## 1. Calibrating Policy in an Adverse Scenario for Libya

## Source details

**Canonical URL:** [1. Calibrating Policy in an Adverse Scenario for Libya](https://www.imf.org/-/media/files/publications/cr/2025/english/1lbyea2025001-print-pdf.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/cr/2025/english/1lbyea2025001-print-pdf.pdf.md)
- [Structured JSON version](/-/media/files/publications/cr/2025/english/1lbyea2025001-print-pdf.pdf.json)

---

### Context
- Libya remains de facto divided between the internationally-recognized government in the West and a competing regime in the East; various independent militias control different parts of the country.
- Armed clashes erupted in Tripoli in May 2025, causing casualties, closures of businesses and schools, and an attack on the central bank premises.
- UNSMIL together with other stakeholders is working to deescalate the situation.
- A summer 2024 disagreement over spending led to a six-week standoff over leadership of the Central Bank of Libya (CBL), disrupting CBL operations and causing a partial shutdown of oil production and exports; an agreement to resume normal central bank operations and oil production was reached in late September 2024.
- Political economy constraints, inadequate capacity, and severe data limitations continue to undermine implementation of reforms and hamper staff analysis.
- Corruption: Libya scored 13 out of 100 in the Corruption Perception Index in 2024.

### Recent economic developments
- Real GDP growth:
  - Estimated to have declined to around 2 percent in 2024 from 10 percent in 2023, driven by the forced contraction in the hydrocarbon sector.
  - Non-hydrocarbon growth remained robust in 2024 on the back of sustained government spending.
  - Oil production rebounded after the CBL dispute, approaching 1.4 million barrels per day in recent months.
- Inflation:
  - Reported inflation stood at around 2 percent in 2024 based on the CPI derived from an outdated Tripoli-only consumption basket.
  - The Bureau of Statistics and Census (BSC) introduced a new CPI covering the entire country; reported inflation from the new series stood at 1.2 percent in 2025 Q1.
  - After adjusting for the base-period issue, inflation becomes 2.4 percent for 2025 Q1.
- Fiscal outturn and public debt:
  - Reported spending by East-based authorities in 2024 was around LYD 60 billion and had not been incorporated in the official end-of-year fiscal statement.
  - The 2024 fiscal outturn was revised from a previously-projected small surplus to a large deficit; public debt increased.
- Current account and reserves:
  - Current account swung from a surplus of 18 percent in 2023 to a deficit of 4 percent of GDP in 2024 due to reduced hydrocarbon exports and increased imports from surged fiscal spending.
  - International reserves increased by nearly US$5 billion, bolstered by the revaluation of gold holdings.
  - Libya’s external position was substantially weaker than the level implied by medium-term fundamentals and desirable policies.
- Exchange rate and FX measures:
  - In April 2025 the CBL devalued the dinar by around 15 percent vis-à-vis the US dollar.
  - The foreign exchange tax remained at 15 percent and additional restrictions on access to foreign exchange were imposed.
  - In April the gap between the official (plus tax) and the parallel exchange rates stood at 17 percent.
  - Historical: a tax of 27 percent was introduced in March 2024, reduced to 15 percent in November 2024; Board approval would lapse after twelve months from July 1, 2024 or the conclusion of the 2025 Article IV consultation, whichever is sooner.
- Banking sector:
  - Banks increased capital to meet Basel II regulatory requirements; the majority met targets in 2024, resulting in a doubling of paid-in capital.
  - Financial soundness indicators strengthened, with significant improvements in nonperforming loan ratios; private sector credit growth was strong in 2024, primarily Murabaha financing to retail customers and salary advances to public employees, while corporate loans were limited.
  - Underlying issues of cash hoarding and low confidence in the banking system remain.
- Oil swap:
  - The oil swap (barter of crude oil for refined products) in place since 2021 was cancelled in April 2025 to address governance concerns and allow the central bank to regain full control over oil export revenues.
- Governance and AML/CFT:
  - High corruption vulnerabilities across tax, customs, fuel trade, education, health, and procurement.
  - Authorities published annual Libyan Audit Bureau (LAB) reports, adopted a 2025-30 national anticorruption strategy, and established an inter-agency anticorruption committee and follow-up instruments, including periodic Administrative Control Authority (ACA) progress reports that should reflect input from the National Anticorruption Commission (NACC).

### Outlook and risks
- Growth and composition:
  - Real GDP growth is projected to rebound in 2025, primarily driven by expansion of oil production, before moderating to about 2 percent over the medium term.
  - Non-hydrocarbon growth is set to remain between 5 and 6 percent throughout the forecast horizon, supported by sustained government spending.
- External and fiscal outlook:
  - Current account is projected to post a small surplus in 2025 (0.7 percent of GDP) before turning into a small deficit over the medium term as oil prices remain subdued.
  - Fiscal balance is projected to remain in deficit—albeit at a much lower level than in 2024—under the weight of continued large government spending.
- Risk assessment:
  - Risks are tilted to the downside.
  - Domestic risks: political instability potentially evolving into active conflict, disrupting oil production and exports, and preventing economic reforms.
  - Global risks: dependence on oil exports exposes Libya to global downside risks through lower oil prices; a global slowdown would reduce oil prices, adversely affecting fiscal and external accounts and international reserves.
  - Geoeconomic risks: escalating trade measures, trade policy uncertainty, intensification of regional conflicts, and geoeconomic fragmentation could result in supply disruptions, upward pressure on import prices, and weaker external and fiscal positions.

### Box 1 — Adverse scenario: main findings and calibrated policy response
- Scenario drivers:
  - The April 2025 WEO (Box 1.1—Scenario A) outlined an adverse scenario involving additional trade, fiscal, and structural policies and other plausible shocks.
  - Libya is primarily affected by weakening global activity and associated lower oil prices; Libya has limited direct trade with the U.S. and an export sector dominated by hydrocarbon exports that are not subject to tariffs.
  - The specific scenario assumes a decrease in the oil price faced by Libya of between 8 to 14 percent, with production volumes unaffected.
- Macroeconomic impacts (selected indicators, deviations from baseline):
  - Real GDP growth could be about 8 percent lower in level in 2026 relative to staff’s baseline.
  - Reductions in oil prices would reduce revenues, leading to lower fiscal spending and lower GDP growth.
  - Because prices of most goods and services are subsidized or administered, the impact on reported inflation would be small.
- Recommended fiscal stance under the adverse scenario:
  - Given the already loose fiscal stance, staff would recommend maintaining the overall fiscal balance as in the baseline (i.e., reducing expenditure in line with lower revenues).
  - Reducing expenditure would lower non-hydrocarbon growth but would help address pressures on the exchange rate.

- Libya Adverse Scenario: Selected Economic Indicators, 2024–2028 (as presented)
  - 2024: Real GDP growth 1.9; CPI inflation (end of Period) 2.3; Fiscal balance (percent of GDP) -25.1
  - 2025 (baseline): Real GDP growth 7.7; CPI inflation (end of Period) 2.3; Fiscal balance (percent of GDP) -5.3
  - 2026 (baseline): Real GDP growth 3.2; CPI inflation (end of Period) 2.3; Fiscal balance (percent of GDP) -3.5
  - 2027 (baseline): Real GDP growth 4.4; CPI inflation (end of Period) 2.3; Fiscal balance (percent of GDP) -3.3
  - 2028 (baseline): Real GDP growth 3.3; CPI inflation (end of Period) 2.3; Fiscal balance (percent of GDP) -2.9
  - Adverse scenario deviations (percentage point, deviation from the baseline):
    - Real GDP growth: 0.0 (2024), -8.4 (2025), -1.2 (2026), 2.8 (2027), 1.6 (2028)
    - CPI inflation (end of Period): 0.0 for all years 2024–2028
    - Fiscal balance (percent of GDP): 0.0 for all years 2024–2028

### Policy discussions — fiscal reforms (selected points and recommendations)
- Unique fiscal challenge:
  - Political instability and institutional fragmentation have prevented the adoption of a unified national budget; the government relies on ad hoc financial agreements to manage public expenditures.
  - The CBL, without a formal mandate, sets the de facto expenditure envelope by limiting the use of foreign exchange; the CBL faces pressure to increase allocations.
- Priority actions:
  - Establish a unified government budget that follows a well-structured and transparent process of preparation, approval, and execution to identify priority spending and enhance fiscal credibility.
  - Implement easy-to-implement measures to enhance fiscal transparency, including production and online publication of audited final fiscal accounts and annual oil revenue reports.
- Expenditure restraint:
  - In the absence of a unified budget, authorities should resist pressure to increase current spending; the resumption of oil production is projected to increase oil revenues by nearly 20 percent in 2025 relative to 2024 levels, which could lead to pressures to spend additional proceeds.
  - Authorities should avoid further increases in spending, particularly on salaries and subsidies, to delink expenditure from volatile oil revenues.
  - Recent announced measures (downsizing diplomatic missions, rein in spending on official events, rationalize state-funded overseas scholarships) may yield some fiscal savings but more decisive actions are needed.
- PFM capacity building:
  - Strengthen the Macroeconomic Unit (MU) within the Ministry of Finance by ensuring appropriate staffing levels and enhancing macro-fiscal expertise, including through specialized training programs and technical assistance.

---

### 19. Substantial fiscal efforts are needed in the medium term to preserve sustainability and achieve intergenerational equity

### Fiscal sustainability: assessment and target
- Libya’s nonhydrocarbon primary deficit is significantly higher than that of other petroleum exporters in the Middle East and North Africa region.
- Staff estimate: to preserve the government’s wealth across generations, authorities should target a nonhydrocarbon primary deficit of no more than US$15 billion.
- Historical/near-term comparator: the nonhydrocarbon primary deficit was US$39 billion in 2024.
- PIH assumptions used to estimate the PIH-consistent nonhydrocarbon primary deficit:
  - oil production and exports continuing through 2100 but decreasing at the rate of 1 percent annually starting form 2050;
  - oil prices in line with April 2025 World Economic Outlook assumptions through 2030 and declining by 0.5 percent afterward;
  - real rate of return on financial assets of 5 percent;
  - population growth of 1.1 percent.
- The 2024 PIH-consistent nonhydrocarbon primary deficit of US$15 billion can be increased annually in line with inflation to stay constant in real terms.

### Medium-term fiscal adjustment: composition and priorities
- Adjustment should combine rationalization of current expenditures and mobilization of non-oil revenues while maintaining capital spending to foster economic diversification.
- Wages:
  - Government wage bill in 2024 stood at 30 percent of GDP (50 percent of current expenditures).
  - Staff recommended a comprehensive review to pave the way—over the medium term—for a reform that (i) ensures desired public services are delivered in a cost-effective and fiscally sustainable manner, and (ii) fosters private sector employment.
- Energy subsidies:
  - Energy subsidies account for 25 percent of GDP (43 percent of current expenditure).
  - Reforming the subsidy system and redistributing the savings in a more targeted manner could ensure equitable sharing of oil wealth and enable investments in human and physical capital.
- Capital spending:
  - Additional resources should be dedicated for non-oil capital spending.
  - Strengthen public investment management, ensure safeguards such as legislative oversight and competitive procurement, and consider reallocating savings from subsidy and wage reforms to increase the capital spending envelope.
- Non-oil revenues:
  - Excluding the tax on foreign exchange transactions, Libya’s tax-to-GDP ratio is low: one percent in 2021-2024.
  - The bulk of these revenues stems from taxes on income and profits, with a small share from customs taxes and none from taxes on goods and services.
  - Authorities are encouraged to initiate a comprehensive review of the tax system; IMF technical assistance is offered for modernizing tax and customs administrations and tax policy design.

---

### 40. Controlling expenditure will be key to ensure sustainability and to achieve

### Fiscal sustainability and expenditure control: required adjustments and statistics
- A sizable adjustment is required over the medium term to set the fiscal position on a sustainable trajectory and preserve intergenerational equity.
- Until a unified budget is agreed, pressures to increase spending on salaries and subsidies should be resisted.
- The adjustment should:
  - Rationalize current spending, particularly wages and energy subsidies.
  - Mobilize non-oil revenues.
  - Maintain capital expenditures at levels that support economic diversification.
- Key fiscal statistics (central government, percent of GDP; as presented):
  - Total Revenue: 79.5, 85.8, 73.6, 69.8, 67.9, 61.1, 58.5, 56.6, 54.5, 52.4
  - Hydrocarbon share of revenue: 78.1, 83.9, 71.6, 55.4, 62.1, 59.2, 56.7, 54.7, 52.6, 50.4
  - Total expenditure and net lending: 64.7, 62.2, 65.4, 94.8, 73.2, 64.6, 61.8, 59.5, 57.1, 54.8
  - Wages (percent of GDP): 20.8, 22.6, 28.3, 28.9, 28.3, 28.2, 28.1, 27.9, 27.6, 27.3
  - Subsidies and transfers (percent of GDP): 23.9, 26.8, 24.1, 23.9, 21.7, 20.4, 18.6, 17.2, 15.6, 14.1
  - Capital expenditure (percent of GDP): 10.9, 8.4, 8.7, 34.6, 20.1, 12.8, 12.1, 11.4, 11.0, 10.9
  - Overall balance (percent of GDP): 14.8, 23.6, 8.2, -25.1, -5.3, -3.5, -3.3, -2.9, -2.7, -2.5
  - Overall balance (in billions of U.S. dollars): 5.2, 10.2, 3.6, -12.1, -2.5, -1.7, -1.6, -1.5, -1.5, -1.4

### Monetary policy and exchange rate framework
- Introducing a well-defined policy rate will:
  - Enhance the CBL’s capacity to smooth the economic cycle.
  - Alleviate pressures on the dinar.
  - Provide a benchmark for pricing of credit by conventional and Islamic banks.
- Phasing out the foreign exchange tax and other exchange restrictions and unifying the exchange rate is recommended to:
  - Reduce distortions and lower reliance on the parallel market.
  - Adhere to Libya’s Article VIII obligations.
- Exchange rate and reserve indicators (as provided):
  - Official exchange rate (LD/US$, period average): 4.5, 4.8, 4.8, 4.8, ..........
  - Parallel market exchange rate (LD/US$, period average): 5.1, 5.1, 5.2, 6.9, ..........
  - Parallel market exchange rate (LD/US$, end of period): 5.0, 5.2, 6.1, 6.4, ..........
  - Gross official reserves (in billions of U.S. dollars): 69.4, 74.1, 78.4, 82.9, 81.1, 79.4, 77.8, 76.3, 74.8, 73.4

### Banking sector reforms and financial stability
- Reforms to reinforce the banking sector’s contribution to economic activity:
  - Introduce well-designed savings plans to reduce cash hoarding, expand banks’ deposit base, establish bank-customer relationships, and support credit provision to the private sector.
  - Enhance transparency and accountability within the banking sector.
  - Promote financial literacy among the public to foster confidence in banks.
  - Strengthen the AML/CFT framework, including aligning with international standards, to support correspondent banking relationships and ensure uninterrupted operations of Libyan banks.
- Financial soundness improvements noted:
  - The majority of banks met their capital increase targets in 2024, resulting in a doubling of paid-in capital.
  - Banks’ financial soundness indicators have strengthened and nonperforming loan ratios have improved.

### Structural and governance reforms for diversification
- A comprehensive reform program should aim to reduce dependence on oil revenues and promote a private sector-led economy.
- Key elements:
  - Enhance the business environment and access to finance.
  - Introduce labor market measures that encourage private sector employment.
  - Tackle corruption, strengthen governance, and enhance the rule of law to support diversification.
- Data and statistical capacity:
  - Data gaps significantly hamper analysis and policy advice.
  - Authorities need to implement technical assistance recommendations in national accounts, external sector statistics, and monetary and financial statistics.

### Implementation and operational recommendations
- Authorities should agree on a unified budget that outlines priority spending and enhances transparency and credibility of fiscal operations.
- Until a unified budget is in place, resist pressures to increase spending on salaries and subsidies.
- Additional recommendations:
  - Implement focused assistance for most at-risk households in the event of commodity-driven food price increases.
  - Meet foreign exchange demand and supply domestic liquidity, including physical cash, as needed.
  - Substitute untargeted subsidies with targeted support for the most vulnerable.
  - Control fiscal expenditure to reduce use of foreign exchange and alleviate reserve pressures.
  - Establish an effective domestic monetary policy framework, including a well-defined policy rate.
  - Preserve correspondent banking relationships and strengthen AML/CFT.
  - Invest in climate-resilient infrastructure and agriculture; formulate a green-transition adaptation and diversification plan.
  - Implement comprehensive governance and anti-corruption reforms, build fiscal and FX reserve buffers, adopt a unified national budget, and transparently communicate fiscal objectives.
  - Gradually eliminate broad-based allowances and grants; replace if necessary with targeted social support measures, and increase capital expenditure to rebuild infrastructure and foster private-sector job creation.
- Operational notes:
  - Staff recommends the next Article IV consultation be held on the standard 12-month cycle.
  - Implementation status highlights (2024 Article IV Staff Recommendations) include continued political division preventing progress on proper budgeting, devaluation of the exchange rate to help alleviate reserve pressure, withdrawal of compromised 50-dinar notes, CBL injection of new banknotes worth LYD 15 billion, LAB published detailed annual reports, adoption of a 2025-30 national anticorruption strategy, and continued capacity development activities hampered by staff inability to travel to Libya.

---

### Annex III. External Sector Assessment

### Overall assessment and policy responses
- The external position was substantially weaker than the level implied by medium-term fundamentals and desirable policies in 2024.
- Libya’s net foreign asset position remains strong thanks to high oil export revenues that generated large current account surpluses in the past.
- Potential policy responses:
  - Rationalizing fiscal spending and pursuing exchange rate reforms to help unify the exchange rate, remove distortions and preserve accumulated foreign currency reserves.
  - Structural reforms to foster diversification away from hydrocarbons, promote private sector-led growth, and enhance competitiveness for long-term external sustainability.

### Current account
- Background:
  - The current account (CA) turned into a deficit of 4.2 percent of GDP in 2024, from a surplus of 18.3 percent of GDP in 2023.
  - The 2024 CA outcome was weighed down by disruptions in oil production and a surge in imports driven by large fiscal spending.
  - These disruptions and larger-than-usual imports resulted in a temporary loss of 9.5 percent of GDP in the current account.
  - Apart from 2025 where it benefits from a rebound in oil production and exports, the CA balance is set to remain in deficit throughout the forecast horizon, weighed down by softening oil prices.
- Assessment and model results (EBA-lite):
  - The EBA-lite current account model estimates a negative CA gap of -10.1 percent of GDP in 2024.
  - Policy gaps, namely large government spending, are one of the drivers of the CA gap in 2024.
  - Using the estimated elasticity of -0.3, results point to an overvaluation of Libya’s real effective exchange rate by nearly 31 percent.
  - The recent devaluation of the dinar by 13 percent (April 6, 2025) is expected to help correct the current account imbalance.
- Libya: EBA-lite Model Results, 2024 (in percent of GDP)
  - CA-Actual-4.2
  - Cyclical contributions (from model) (-)1.4
  - Additional temporary/statistical factors (-) 2/-9.5
  - Natural disasters and conflicts (-)1.1
  - Adjusted CA2.8
  - CA Norm (from model) 3/12.9
  - Adjustments to the norm (+)0.0
  - Adjusted CA Norm12.9
  - CA Gap-10.1
  - o/w Relative policy gap2.2
  - Elasticity-0.3
  - REER Gap (in percent)30.7

### Real exchange rate
- Background:
  - The Libyan Dinar (LYD) is pegged to the SDR; in January 2021 the CBL fixed the official rate at SDR 0.1555 per LYD 1 (effectively pricing the Dinar at 4.5 to the US dollar).
  - On April 6, 2025, the CBL devalued the dinar by about 13 percent.
  - In April 2025, authorities effected another devaluation of the dinar by 13.3 percent to 0.1349 SDR, setting the new exchange rate at 5.57 dinars per US dollar.
  - A tax on foreign currency of 27 percent was imposed in March 2024 before being reduced to 15 percent in November 2024.
  - The Nominal Effective Exchange Rate (NEER) appreciated by about 6 percent in 2024; the Real Effective Exchange Rate remained broadly stable.
- Assessment:
  - The CA gap and an elasticity of -0.3 indicate the REER is overvalued by 31 percent.
  - The April 2025 devaluation by about 13 percent is a first step to correct the overvaluation.
  - Exchange rate movements have limited short-term impact on competitiveness because exports are concentrated in crude oil priced in dollars and there is limited substitutability between imports and domestically produced products.

### Capital and financial accounts; FX intervention and reserves
- Lack of detailed information on financial flows complicates analysis of the financial account.
- The strong reserve position limits risks and vulnerabilities to capital flows in the near term.
- Efforts to enhance political stability and implement structural reforms would help attract foreign direct investment beyond hydrocarbons.
- FX intervention and reserves level:
  - Gross official reserves stood at $83 billion at the end of 2024—up by $4.5 billion relative to 2023.
  - Reserves represent almost 200 percent of GDP and cover more than 2 years of prospective imports.
  - Assuming fiscal spending remains high, reserves are projected to decline gradually over the medium-term by about $10 billion, but still remain ample.

---

### 4. Libya faces significant governance weaknesses across key state functions

### Corruption and governance weaknesses — summary
- Operation of the oil and gas sector and state-owned enterprises is affected by corruption risks with macroeconomic implications.
- Corruption affects the banking sector, public financial management and public service; recruitment of ghost workers aggravates fiscal challenges.
- Procurement processes are often opaque and fragmented, with frequent non-competitive methods and limited public disclosure.
- The lack of a unified digital platform exacerbates favoritism and inefficient public spending.
- Fuel subsidy policy, coupled with corruption, has led to widespread fuel smuggling and market distortions.
- NOC governance failures: politicized appointments, lack of accountability, absence of compliance and risk management units, and opaque procurement.

### Anticorruption legal framework and enforcement — key findings
- Libya’s anti-corruption legal framework remains fragmented and not in line with international standards.
- The Penal Code of 1953 criminalizes bribery, embezzlement, and abuse of office, but definitions overlap and sanctions lack sufficient deterrence.
- Gaps include absence of criminalization for bribery of foreign public officials, limited whistleblower protection, incomplete asset disclosure obligations, and no dedicated anticorruption law.
- Anticorruption institutions suffer from fragmentation, overlapping mandates and lack of independence (LAB, ACA, NACC, Prosecutor’s Office).
- Political division between East and West has led to parallel structures and inconsistent priorities.
- Financial investigations should be conducted in parallel with corruption cases and supported by effective access to information domestically and abroad.
- Strengthening prosecutorial independence and providing adequate resources would support more effective enforcement.

### Rule of law and property rights — key findings
- Judicial independence is compromised by pressure from political and armed actors; independence of judges perceived as influenced by others and limited resources.
- BTI scores: 2 out of 10 on separation of powers; 2 on independence of the judiciary; 2 on protection of private property.
- Heritage Foundation Index of Economic Freedom (2025): scored 5.7 out of 100 in property rights.
- Arab Barometer: public trust in judicial institutions improved from 37 percent in 2019 to 55 percent in 2022.
- The Land Registry has been under a moratorium on new registrations since 2011, limiting ownership claims and hindering use of real estate as collateral.

### Sectoral governance: extractives, energy, and NOC governance
- Weak oversight in extractive industries and the electricity sector facilitates corruption and leakage.
- Fuel subsidy policy and smuggling create macro-critical governance vulnerabilities.
- NOC governance recommendations include clearer separation of board and management, merit-based selection criteria, performance evaluations, and strengthened compliance, risk audit, and ethics functions.

### Policy recommendations (selected and implementation agencies)
- Public Financial Management / Corruption Risks:
  - 1. Publish an annual budget law, mid-year review, and end-year financial statement. (MOF)
  - 2. Assign an agency with powers to improve the procurement system. (ACA)
  - 3. Modernize the procurement legal framework. (ACA)
  - 4. Establish a centralized digital procurement portal, capable of collecting beneficial ownership data. (ACA)
  - 5. Adopt a risk-based protocol to customs inspections. (MOF)
- Transparency:
  - 6. Adopt a Law on Transparency and Access to Information aligned with Articles 10 and 13 of UNCAC and with the 2017 OECD Recommendation of the Council on Open Government. (ACA)
- Institutions:
  - 7. Enhance operational independence and technical capacity of the LAB by ensuring secure, multi-year budgetary allocations and measures to shield its leadership from political interference. (LAB)
  - 8. Develop a performance monitoring framework for audits and expand LAB's access to information, including from SOEs and subsidiaries. (LAB)
  - 9. Streamline mandates of enforcement agencies. (ACA, LAB, NACC)
- Enforcement:
  - 10. Introduce transparent, merit-based procedures for appointment of anticorruption prosecutors. (MOJ)
- Extractives / Fuels:
  - 11. Adhere to the EITI, prioritizing production of accurate data on production and exports of oil. (NOC)
  - 12. Strengthen NOC's governance framework by adopting:
    - i. Clear separation of board’s supervisory role from management;
    - ii. Transparent and merit-based selection criteria of Executive Director;
    - iii. Improve rules to ensure qualifications and independence of board members;
    - iv. Adopt system of performance evaluations for both the board and management. (NOC)
  - 13. Strengthen NOC’s control function by adopting:
    - i. A Risk Audit Department reporting to the board;
    - ii. A Compliance Department to oversee procurement, ethics, and operational policies;
    - iii. A state-of-the-art Ethics Code. (NOC)
- Rule of Law:
  - 14. Reactivate the registration function of the National Registry of Property. (MOJ / Judiciary)

*Source: IMF — "1. Calibrating Policy in an Adverse Scenario for Libya" and related excerpts from 1lbyea2025001-print-pdf.*

### 1. Calibrating Policy in an Adverse Scenario for Libya _____________________________________________ 9

### 1. Calibrating Policy in an Adverse Scenario for Libya

### Context
- Libya remains de facto divided between the internationally-recognized government in the West and a competing regime in the East; various independent militias control different parts of the country.
- Armed clashes erupted in Tripoli in May 2025, causing casualties, closures of businesses and schools, and an attack on the central bank premises.
- The UN Support Mission in Libya (UNSMIL) together with other stakeholders is working to deescalate the situation.
- A summer 2024 disagreement over spending led to a six-week standoff over leadership of the Central Bank of Libya (CBL), disrupting CBL operations and causing a partial shutdown of oil production and exports; an agreement to resume normal central bank operations and oil production was reached in late September 2024.
- Political economy constraints, inadequate capacity, and severe data limitations continue to undermine implementation of reforms and hamper staff analysis (see Annex V).
- Corruption is a major concern; Libya scored 13 out of 100 in the Corruption Perception Index in 2024.

### Recent Economic Developments
- Real GDP growth:
  - Estimated to have declined to around 2 percent in 2024 from 10 percent in 2023, driven by the forced contraction in the hydrocarbon sector.
  - Non-hydrocarbon growth remained robust in 2024 on the back of sustained government spending.
  - Oil production rebounded after the CBL dispute, approaching 1.4 million barrels per day in recent months.
- Inflation:
  - Reported inflation stood at around 2 percent in 2024 based on the CPI derived from an outdated Tripoli-only consumption basket.
  - The Bureau of Statistics and Census (BSC) introduced a new CPI covering the entire country; reported inflation from the new series stood at 1.2 percent in 2025 Q1.
  - The new index could have a significant downward bias due to methodological deficiencies; after adjusting for the base-period issue, inflation becomes 2.4 percent for 2025 Q1.
- Fiscal outturn and public debt:
  - Reported spending by East-based authorities in 2024 was around LYD 60 billion and had not been incorporated in the official end-of-year fiscal statement.
  - The 2024 fiscal outturn was revised from a previously-projected small surplus to a large deficit; public debt increased (see Annex IV).
- Current account and reserves:
  - Current account swung from a surplus of 18 percent in 2023 to a deficit of 4 percent of GDP in 2024 due to reduced hydrocarbon exports and increased imports from surged fiscal spending.
  - International reserves increased by nearly US$5 billion, bolstered by the revaluation of gold holdings.
  - Libya’s external position was substantially weaker than the level implied by medium-term fundamentals and desirable policies (see Annex III).
- Exchange rate and FX measures:
  - In April 2025 the CBL devalued the dinar by around 15 percent vis-à-vis the US dollar.
  - The foreign exchange tax remained at 15 percent and additional restrictions on access to foreign exchange were imposed.
  - In April the gap between the official (plus tax) and the parallel exchange rates stood at 17 percent.
  - Historical notes: a tax of 27 percent was introduced in March 2024, reduced to 15 percent in November 2024; the Board approval for the measure would lapse after twelve months from July 1, 2024 or the conclusion of the 2025 Article IV consultation, whichever is sooner.
- Banking sector:
  - Banks increased capital to meet Basel II regulatory requirements; the majority met targets in 2024, resulting in a doubling of paid-in capital.
  - Financial soundness indicators strengthened, with significant improvements in nonperforming loan ratios; private sector credit growth was strong in 2024, primarily Murabaha financing to retail customers and salary advances to public employees, while corporate loans were limited.
  - Underlying issues of cash hoarding and low confidence in the banking system remain.
- Oil swap:
  - The oil swap (barter of crude oil for refined products) in place since 2021 was cancelled in April 2025; cancellation intended to address governance concerns and allow the central bank to regain full control over oil export revenues.
- Governance and AML/CFT:
  - High corruption vulnerabilities across tax, customs, fuel trade, education, health, and procurement.
  - Authorities have published annual reports of the Libyan Audit Bureau (LAB), adopted a 2025-30 national anticorruption strategy, and established an inter-agency anticorruption committee and follow-up instruments, including periodic Administrative Control Authority (ACA) progress reports that should reflect input from the National Anticorruption Commission (NACC).

### Outlook and Risks
- Growth and composition:
  - Real GDP growth is projected to rebound in 2025, primarily driven by expansion of oil production, before moderating to about 2 percent over the medium term.
  - Non-hydrocarbon growth is set to remain between 5 and 6 percent throughout the forecast horizon, supported by sustained government spending.
- External and fiscal outlook:
  - Current account is projected to post a small surplus in 2025 (0.7 percent of GDP) before turning into a small deficit over the medium term as oil prices remain subdued.
  - Fiscal balance is projected to remain in deficit—albeit at a much lower level than in 2024—under the weight of continued large government spending.
- Risk assessment:
  - Risks are tilted to the downside (Annex II).
  - Domestic risks: political instability potentially evolving into active conflict, disrupting oil production and exports, and preventing economic reforms.
  - Global risks: dependence on oil exports exposes Libya to global downside risks through lower oil prices; a global slowdown would reduce oil prices, adversely affecting fiscal and external accounts and international reserves.
  - Geoeconomic risks: escalating trade measures, trade policy uncertainty, intensification of regional conflicts, and geoeconomic fragmentation could result in supply disruptions, upward pressure on import prices, and weaker external and fiscal positions.

### Box 1 — Adverse Scenario: Main Findings and Calibrated Policy Response
- Scenario drivers:
  - The April 2025 WEO (Box 1.1—Scenario A) outlined an adverse scenario involving additional trade, fiscal, and structural policies and other plausible shocks.
  - Libya is primarily affected by weakening global activity and associated lower oil prices; Libya has limited direct trade with the U.S. and an export sector dominated by hydrocarbon exports that are not subject to tariffs.
  - The specific scenario assumes a decrease in the oil price faced by Libya of between 8 to 14 percent, with production volumes unaffected.
- Macroeconomic impacts (selected indicators, deviations from baseline):
  - Real GDP growth could be about 8 percent lower in level in 2026 relative to staff’s baseline.
  - Reductions in oil prices would reduce revenues, leading to lower fiscal spending and lower GDP growth.
  - Because prices of most goods and services are subsidized or administered, the impact on reported inflation would be small.
- Recommended fiscal stance under the adverse scenario:
  - Given the already loose fiscal stance, staff would recommend maintaining the overall fiscal balance as in the baseline (i.e., reducing expenditure in line with lower revenues).
  - Reducing expenditure would lower non-hydrocarbon growth but would help address pressures on the exchange rate.

- Libya Adverse Scenario: Selected Economic Indicators, 2024–2028 (as presented)
  - 2024: Real GDP growth 1.9; CPI inflation (end of Period) 2.3; Fiscal balance (percent of GDP) -25.1
  - 2025 (baseline): Real GDP growth 7.7; CPI inflation (end of Period) 2.3; Fiscal balance (percent of GDP) -5.3
  - 2026 (baseline): Real GDP growth 3.2; CPI inflation (end of Period) 2.3; Fiscal balance (percent of GDP) -3.5
  - 2027 (baseline): Real GDP growth 4.4; CPI inflation (end of Period) 2.3; Fiscal balance (percent of GDP) -3.3
  - 2028 (baseline): Real GDP growth 3.3; CPI inflation (end of Period) 2.3; Fiscal balance (percent of GDP) -2.9
  - Adverse scenario deviations (percentage point, deviation from the baseline):
    - Real GDP growth: 0.0 (2024), -8.4 (2025), -1.2 (2026), 2.8 (2027), 1.6 (2028)
    - CPI inflation (end of Period): 0.0 for all years 2024–2028
    - Fiscal balance (percent of GDP): 0.0 for all years 2024–2028

### Policy Discussions — Fiscal Reforms (selected points and recommendations)
- Unique fiscal challenge:
  - Political instability and institutional fragmentation have prevented the adoption of a unified national budget; the government relies on ad hoc financial agreements to manage public expenditures.
  - The CBL, without a formal mandate, sets the de facto expenditure envelope by limiting the use of foreign exchange; the CBL faces pressure to increase allocations.
- Priority actions:
  - Establish a unified government budget that follows a well-structured and transparent process of preparation, approval, and execution to identify priority spending and enhance fiscal credibility.
  - Implement easy-to-implement measures to enhance fiscal transparency, including production and online publication of audited final fiscal accounts and annual oil revenue reports (building on recent IMF technical assistance).
- Expenditure restraint:
  - In the absence of a unified budget, authorities should resist pressure to increase current spending; the resumption of oil production is projected to increase oil revenues by nearly 20 percent in 2025 relative to 2024 levels, which could lead to pressures to spend additional proceeds.
  - Authorities should avoid further increases in spending, particularly on salaries and subsidies, to delink expenditure from volatile oil revenues.
  - Recent announced measures (plans to downsize diplomatic missions, rein in spending on official events, rationalize state-funded overseas scholarships) may yield some fiscal savings but more decisive actions are needed.
- PFM capacity building:
  - Strengthen the Macroeconomic Unit (MU) within the Ministry of Finance by ensuring appropriate staffing levels and enhancing macro-fiscal expertise, including through specialized training programs and technical assistance, to improve understanding of the fiscal situation and prepare for a more effective budgetary process once a unified budget is agreed upon.

*Source: IMF — "1. Calibrating Policy in an Adverse Scenario for Libya" (extracted content).*

### 19. Substantial fiscal efforts are needed in the medium term to preserve sustainability and

### 19. Substantial fiscal efforts are needed in the medium term to preserve sustainability and achieve intergenerational equity.

### Fiscal sustainability: assessment and target
- Libya’s nonhydrocarbon primary deficit is significantly higher than that of other petroleum exporters in the Middle East and North Africa region.
- Staff estimate: to preserve the government’s wealth across generations, authorities should target a nonhydrocarbon primary deficit of no more than US$15 billion.
- Historical/near-term comparator: the nonhydrocarbon primary deficit was US$39 billion in 2024.
- PIH (Permanent Income Hypothesis) assumptions used to estimate the PIH-consistent nonhydrocarbon primary deficit:
  - oil production and exports continuing through 2100 but decreasing at the rate of 1 percent annually starting form 2050;
  - oil prices in line with April 2025 World Economic Outlook assumptions through 2030 and declining by 0.5 percent afterward;
  - real rate of return on financial assets of 5 percent;
  - population growth of 1.1 percent.
- The 2024 PIH-consistent nonhydrocarbon primary deficit of US$15 billion can be increased annually in line with inflation to stay constant in real terms.

### Medium-term fiscal adjustment: composition and priorities
- Adjustment should combine rationalization of current expenditures and mobilization of non-oil revenues while maintaining capital spending to foster economic diversification.
- Wages:
  - Government wage bill in 2024 stood at 30 percent of GDP (50 percent of current expenditures).
  - Staff recommended a comprehensive review to pave the way—over the medium term—for a reform that (i) ensures desired public services are delivered in a cost-effective and fiscally sustainable manner, and (ii) fosters private sector employment.
  - Recent capacity development engagement with the IMF’s Fiscal Affairs Department and Middle East Technical Assistance Center should be leveraged to empower the MU and expand capacity to produce fiscal and economic analyses and develop a medium-term fiscal framework.
- Energy subsidies:
  - Energy subsidies account for 25 percent of GDP (43 percent of current expenditure).
  - With a substantial increase in fuel and electricity expenditures over the past three years, reforming energy subsidies should become a priority.
  - Reforming the subsidy system and redistributing the savings in a more targeted manner could ensure equitable sharing of oil wealth and enable investments in human and physical capital.
- Capital spending:
  - Additional resources should be dedicated for non-oil capital spending.
  - Strengthen public investment management, ensure safeguards such as legislative oversight and competitive procurement, and consider reallocating savings from subsidy and wage reforms to increase the capital spending envelope.
- Non-oil revenues:
  - Excluding the tax on foreign exchange transactions, Libya’s tax-to-GDP ratio is low: one percent in 2021-2024.
  - The bulk of these revenues stems from taxes on income and profits, with a small share from customs taxes and none from taxes on goods and services.
  - Authorities are encouraged to initiate a comprehensive review of the tax system; the IMF stands ready to provide technical assistance focused on modernizing tax and customs administrations and on tax policy design.

### Monetary and exchange rate framework
- Libya needs an effective domestic monetary policy framework with a well-defined policy rate to serve as a reference for both conventional and Islamic banks.
- Such a framework would allow the CBL to react to changing macroeconomic conditions, resist depreciation pressures, and provide a benchmark for pricing of credit.
- Without an effective monetary policy framework and with fiscal expenditure not properly controlled, the dinar is likely to be under continuous depreciation pressure.
- Given lack of political consensus on reducing fiscal expenditures, authorities should phase out the foreign exchange tax and other exchange restrictions and unify the exchange rate.
  - The existing arrangement—attempts to reduce use of foreign currency coupled with a foreign exchange tax—creates distortions and pushes agents to the parallel market.
  - Phasing out the foreign exchange tax and other exchange restrictions and unifying the exchange rate would eliminate the gap between official and parallel market exchange rates and adhere to Libya’s Article VIII obligations.
- Technical notes:
  - The CBL would need technical assistance to calibrate an appropriate policy rate to defend the peg, pay interest rates on bank reserves, or charge interest rates to banks.
  - Reforming the regulatory framework governing Islamic finance to facilitate the issuance of Sharia-compliant instruments is needed given the 2013 law’s differing implementation across regions.

### Banking sector: confidence, instruments, and AML/CFT
- Restoring public confidence is essential: political instability, weak institutions, and cash hoarding have lowered trust and generated cash shortages.
- CBL actions:
  - Injected new low-denomination banknotes worth LYD 15 billion (7 percent of GDP) to address shortages.
  - Promoted electronic payments; cashless transactions have grown substantially over the past year.
- Remaining issues:
  - Cash hoarding persisted despite the banknote injection.
  - Absence of attractive saving plans and informality in the private sector reduce deposit mobilization.
  - Since the shift to Islamic finance, banks have mainly operated on commissions from providing foreign currency.
- Recommendations:
  - CBL should encourage banks to introduce saving plans to attract excess cash and remove impediments to private sector credit.
  - Strengthen AML/CFT framework to support correspondent banking relationships and economic stability:
    - Align legal framework with international standards.
    - Develop understanding of money laundering and terrorism financing risks and coordinate risk-focused mitigation measures.
    - Improve AML/CFT supervision by the CBL to enhance preventive measures by banks.

### Structural reforms, labor market, and governance
- Private sector constraints to address:
  - High level of informality, absence of regulatory framework for businesses, limited access to finance and to foreign currency.
  - Authorities should pursue reforms to develop regulatory frameworks, enhance access to finance, and improve the security situation to leverage non-hydrocarbon potential (agriculture, fishery, manufacturing, tourism).
  - Some deep structural reforms will require political normalization and longer-term planning.
- Data and capacity development:
  - Significant data gaps affect analysis and policy advice; staff will work with authorities to address capacity development needs including national accounts and the external sector.
- Labor market reforms:
  - Key challenges: dominance of public sector, reliance on foreign labor, significant skills mismatches, gender disparities, political instability.
  - Short-term: limit expansion of public sector employment.
  - Medium-term: promote investment in industries outside oil and gas to absorb excess labor; enhance education quality and vocational training; establish a framework for foreign workers to guarantee legal protection.
- Box 2 labor market facts and figures:
  - About 86 percent of Libya’s official labor force works in the public sector and this share reaches 95 percent for women.
  - Private sector is not the preferred employer for most Libyans; informality and skills mismatches exacerbate the problem.
  - Estimated number of foreign workers: between 2 and 3 million, comparable to the size of the formal labor force.
  - Female labor participation rates remain low in the private sector; female employment concentrated in education; private sector female participation almost non-existent.
- Governance and anti-corruption priorities:
  - Corruption vulnerabilities are high across fiscal governance, rule of law, financial sector oversight, and AML efforts.
  - Key reforms: create a centralized digital portal for procurement tenders with competitive and transparent processes; publish beneficial ownership information on successful bidders; improve internal controls in tax and customs; adhere to the Extractive Industries Transparency Initiative; reform governance of the NOC and subsidiaries; reinforce independence and mandate of anticorruption bodies; ensure judicial independence.
  - AML/CFT reform requires overcoming political division that prevents amendment of key legislation and improving coordination and capacity among authorities.

### Authorities’ views and recent developments
- Authorities broadly agreed with staff’s macroeconomic assessment and noted main risks: political instability, potential disruptions to oil production and exports, and falling oil prices.
- Authorities’ concerns and actions:
  - Concern about surge in public spending; unrestrained spending by East and West and lower oil revenues led to outflows of international reserves of US$6 billion in 2024 and another US$5 billion in the first quarter of 2025.
  - To avoid further reserve depletion, authorities devalued the Libyan dinar.
  - Authorities intend to maintain the foreign exchange tax and regulations on access to foreign currency in the short term, viewing them as necessary to limit reserve pressure and to curb money laundering, financing of terrorism, and smuggling, though they recognize the tax is distortionary and should eventually be cancelled.
  - Fuel subsidy reform is on the agenda; authorities cancelled the fuel swap to limit smuggling and appreciated forthcoming analysis and recommendations.
  - Banking sector reforms: CBL introduced reforms addressing counterfeit currency, cash shortages, capital adequacy, and financial inclusion; banks are currently well capitalized and electronic payments are expanding, but challenges remain (outdated banking law, AML/CFT, lack of monetary policy instruments, absence of an Islamic finance framework).
  - Authorities recognize governance challenges and aim to address vulnerabilities within current capabilities.
  - Authorities emphasize the need for a unified economic vision to address fiscal spending, employment, private sector growth, governance, long-term sustainability, and equitable resource distribution.

### Staff appraisal: outlook and policy implications
- Economic activity and fiscal and external accounts will remain heavily dependent on oil sector developments and subject to downside risks.
- Following a rebound in oil production, economic growth is expected to be in double digits in 2025, before moderating over the medium term.
- Despite expected increase in oil exports, current account and fiscal balances are set to remain in deficit over most of the forecast horizon due to projected softening of oil prices and large fiscal spending.
- Main downside risks: potential intensification of domestic political tensions disrupting oil production and exports; adverse global economic and geopolitical developments putting downward pressure on oil prices.
- Policy implication: accelerating reforms to restrain fiscal spending and diversify the economy away from oil is crucial to mitigate risks and preserve sustainability.

*Source: 1lbyea2025001-print-pdf - 19. Substantial fiscal efforts are needed in the medium term to preserve sustainability and achieve intergenerational equity.*

### 40. Controlling expenditure will be key to ensure sustainability and to achieve

### 40. Controlling expenditure will be key to ensure sustainability and to achieve

### Fiscal sustainability and expenditure control
- A sizable adjustment is required over the medium term to set the fiscal position on a sustainable trajectory and preserve intergenerational equity.
- Until a unified budget is agreed, pressures to increase spending on salaries and subsidies should be resisted.
- The adjustment should:
  - Rationalize current spending, particularly wages and energy subsidies.
  - Mobilize non-oil revenues.
  - Maintain capital expenditures at levels that support economic diversification.
- Key fiscal statistics (central government, percent of GDP; as presented):
  - Total Revenue: 79.5, 85.8, 73.6, 69.8, 67.9, 61.1, 58.5, 56.6, 54.5, 52.4
  - Hydrocarbon share of revenue: 78.1, 83.9, 71.6, 55.4, 62.1, 59.2, 56.7, 54.7, 52.6, 50.4
  - Total expenditure and net lending: 64.7, 62.2, 65.4, 94.8, 73.2, 64.6, 61.8, 59.5, 57.1, 54.8
  - Current expenditure (of which wages): Wages (percent of GDP) 20.8, 22.6, 28.3, 28.9, 28.3, 28.2, 28.1, 27.9, 27.6, 27.3
  - Subsidies and transfers (percent of GDP): 23.9, 26.8, 24.1, 23.9, 21.7, 20.4, 18.6, 17.2, 15.6, 14.1
  - Capital expenditure (percent of GDP): 10.9, 8.4, 8.7, 34.6, 20.1, 12.8, 12.1, 11.4, 11.0, 10.9
  - Overall balance (percent of GDP): 14.8, 23.6, 8.2, -25.1, -5.3, -3.5, -3.3, -2.9, -2.7, -2.5
  - Overall balance (in billions of U.S. dollars): 5.2, 10.2, 3.6, -12.1, -2.5, -1.7, -1.6, -1.5, -1.5, -1.4

### Monetary policy and exchange rate framework
- Introducing a well-defined policy rate will:
  - Enhance the Central Bank of Libya’s (CBL’s) capacity to smooth the economic cycle.
  - Alleviate pressures on the dinar.
  - Provide a benchmark for the pricing of credit by conventional and Islamic banks.
- Phasing out the foreign exchange tax alongside other exchange restrictions (in line with Libya’s Article VIII obligations) is recommended to:
  - Reduce distortions.
  - Lower the need for economic agents to resort to the parallel market.
  - Help unify the exchange rate.
- Exchange rate and reserve indicators (as provided):
  - Official exchange rate (LD/US$, period average): 4.5, 4.8, 4.8, 4.8, ..........
  - Parallel market exchange rate (LD/US$, period average): 5.1, 5.1, 5.2, 6.9, ..........
  - Parallel market exchange rate (LD/US$, end of period): 5.0, 5.2, 6.1, 6.4, ..........
  - Gross official reserves (in billions of U.S. dollars): 69.4, 74.1, 78.4, 82.9, 81.1, 79.4, 77.8, 76.3, 74.8, 73.4

### Banking sector reforms and financial stability
- Reforms needed to reinforce the banking sector’s contribution to economic activity:
  - Introduce well-designed savings plans to reduce cash hoarding, expand banks’ deposit base, establish bank-customer relationships, and support credit provision to the private sector.
  - Enhance transparency and accountability within the banking sector.
  - Promote financial literacy among the public to foster confidence in banks.
  - Strengthen the AML/CFT framework, including aligning with international standards, to support correspondent banking relationships and ensure uninterrupted operations of Libyan banks.
- Financial soundness improvements noted:
  - The majority of banks met their capital increase targets in 2024, resulting in a doubling of paid-in capital.
  - Banks’ financial soundness indicators have strengthened and nonperforming loan ratios have improved.

### Structural and governance reforms for diversification
- A comprehensive reform program should aim to reduce dependence on oil revenues and promote a private sector-led economy.
- Key elements:
  - Enhance the business environment and access to finance.
  - Introduce labor market measures that encourage private sector employment.
  - Tackle corruption, strengthen governance, and enhance the rule of law to support diversification.
- Reforms should prioritize private sector engagement and competitiveness to expand non-oil activity.

### Data and statistical capacity
- Data gaps significantly hamper analysis and policy advice.
- Authorities need to implement technical assistance recommendations in:
  - National accounts and external sector statistics.
  - Monetary and financial statistics.
- Improve data collection and reporting and build statistical capacity.

### Implementation and operational recommendations
- Authorities should remain steadfast in efforts to agree on a unified budget that outlines priority spending and enhances transparency and credibility of fiscal operations.
- Until a unified budget is in place:
  - Resist pressures to increase spending on salaries and subsidies.
- Recommendations drawn from the Risk Assessment Matrix and staff advice:
  - Implement focused assistance for most at-risk households in the event of commodity-driven food price increases.
  - Meet foreign exchange demand and supply domestic liquidity, including physical cash, as needed.
  - Substitute untargeted subsidies with targeted support for the most vulnerable.
  - Control fiscal expenditure to reduce use of foreign exchange and alleviate reserve pressures.
  - Establish an effective domestic monetary policy framework, including a well-defined policy rate.
  - Preserve correspondent banking relationships and strengthen AML/CFT.
  - Invest in climate-resilient infrastructure and agriculture; formulate a green-transition adaptation and diversification plan.
  - Implement comprehensive governance and anti-corruption reforms, build fiscal and FX reserve buffers, adopt a unified national budget, and transparently communicate fiscal objectives.
  - Gradually eliminate broad-based allowances and grants; replace if necessary with targeted social support measures, and increase capital expenditure to rebuild infrastructure and foster private-sector job creation.

### Other operational notes
- Staff recommends that the next Article IV consultation be held on the standard 12-month cycle.
- Implementation status highlights (2024 Article IV Staff Recommendations):
  - Political division continued to prevent progress on proper budgeting.
  - No progress on streamlining SOE ownership structures and tighter control.
  - Payment system not fully integrated; progress hinges on political reconciliation.
  - The exchange rate was devalued to help alleviate pressure on international reserves.
  - Compromised 50-dinar notes withdrawn; CBL injected new banknotes worth LYD 15 billion to replace them.
  - LAB published detailed annual reports; country adopted a 2025-30 national anticorruption strategy and follow-up instruments.
  - Capacity development (CD) activities continued but hampered by staff inability to travel to Libya.
  - Continued fragility prevented long-term planning for private sector development.

*Source: 1lbyea2025001-print-pdf (IMF).*

### Annex III. External Sector Assessment

### Annex III. External Sector Assessment

### Overall Assessment
- The external position was substantially weaker than the level implied by medium-term fundamentals and desirable policies in 2024.
- Libya’s net foreign asset position remains strong thanks to high oil export revenues that have generated large current account surpluses in the past.
- Potential Policy Responses:
  - Rationalizing fiscal spending and pursuing exchange rate reforms will help unify the exchange rate, remove distortions and preserve Libya’s accumulated foreign currency reserves.
  - Structural reforms that foster diversification away from hydrocarbons, promote private sector-led growth, and enhance competitiveness are key for long-term external sustainability, given the risk of a sustained decline in oil prices.

### Current Account
- Background:
  - The current account (CA) turned into a deficit of 4.2 percent of GDP in 2024, from a surplus of 18.3 percent of GDP in 2023.
  - The 2024 CA outcome was weighed down by disruptions in oil production and a surge in imports driven by large fiscal spending.
  - These disruptions, together with larger-than-usual imports, resulted in a temporary loss of 9.5 percent of GDP in the current account.
  - Apart from 2025 where it benefits from a rebound in oil production and exports, the CA balance is set to remain in deficit throughout the forecast horizon, weighed down by softening oil prices.
  - With oil exports representing the bulk of exports (more than 90 percent), CA projections are subject to risks from oil price volatility and potential disruptions in oil production.
- Assessment and model results (EBA-lite):
  - The EBA-lite current account model estimates a negative CA gap of -10.1 percent of GDP in 2024 (larger than the 2023 assessment of -1 percent of GDP).
  - Policy gaps, namely large government spending, are one of the drivers of the CA gap in 2024.
  - Using the estimated elasticity of -0.3, results point to an overvaluation of Libya’s real effective exchange rate by nearly 31 percent.
  - The recent devaluation of the dinar by 13 percent (April 6, 2025) is expected to help correct the current account imbalance.
- Libya: EBA-lite Model Results, 2024 (in percent of GDP)
  - CA-Actual-4.2
  - Cyclical contributions (from model) (-)1.4
  - Additional temporary/statistical factors (-) 2/-9.5
  - Natural disasters and conflicts (-)1.1
  - Adjusted CA2.8
  - CA Norm (from model) 3/12.9
  - Adjustments to the norm (+)0.0
  - Adjusted CA Norm12.9
  - CA Gap-10.1
  - o/w Relative policy gap2.2
  - Elasticity-0.3
  - REER Gap (in percent)30.7
  - Notes:
    - 1/ Based on the EBA-lite 3.0 methodology
    - 3/ Cyclically adjusted, including multilateral consistency adjustments.
    - 2/ The additional adjustment (10.9 percent of GDP) accounts for (i) the decline in hydrocarbon exports (5.2 percent of GDP) due to oil production disruptions in 2024, and (ii) the more-than-usual increase in imports due to excessive spending in 2024 (4.3 percent of GDP).

### Real Exchange Rate
- Background:
  - The Libyan Dinar (LYD) is pegged to the SDR.
  - In January 2021, the Central Bank of Libya (CBL) fixed the official rate at SDR 0.1555 per LYD 1, effectively pricing the Dinar at 4.5 to the US dollar.
  - On April 6, 2025, the Central Bank of Libya devalued the dinar by about 13 percent.
  - In April 2025, the authorities effected another devaluation of the dinar by 13.3 percent to 0.1349 SDR, setting the new exchange rate at 5.57 dinars per US dollar.
  - A tax on foreign currency of 27 percent was imposed by the authorities in March 2024 before being reduced it to 15 percent in November of the same year.
  - The Nominal Effective Exchange Rate (NEER) appreciated by about 6 percent in 2024, reflecting a stronger US dollar, whereas the Real Effective Exchange Rate remained broadly stable, driven by a favorable inflation differential.
- Assessment:
  - The CA gap estimated from the CA model and an elasticity of -0.3 indicate that the REER is overvalued by 31 percent.
  - The authorities have taken a first step towards correcting this overvaluation by devaluing the dinar by about 13 percent in April 2025.
  - Exchange rate movements have a limited impact on Libya’s competitiveness in the short term because most exports are concentrated in crude oil priced in dollars and there is limited substitutability between imports and domestically produced products.

### Capital and Financial Accounts: Flows and Policy Measures
- Assessment:
  - A lack of detailed information on the nature of financial flows in Libya complicates analysis of the financial account.
  - The strong reserve position limits risks and vulnerabilities to capital flows in the near term.
  - Efforts to enhance political stability and implement structural reforms that support economic diversification and promote the private sector would help attract foreign direct investment into sectors beyond hydrocarbons.

### FX Intervention and Reserves Level
- Background:
  - Libya’s gross official reserves stood at $83 billion at the end of 2024—up by $4.5 billion relative to 2023.
  - Reserves represent almost 200 percent of GDP and cover more than 2 years of prospective imports.
  - Assuming fiscal spending remains high, reserves are projected to decline gradually over the medium-term by about $10 billion, but still remain ample.
- Assessment:
  - Reserves play a dual role of providing buffers for precautionary motives and savings for future generations.
  - Against the backdrop of heightened political and security risks, Libya’s reserves are adequate for these purposes.

*Source: Annex III. External Sector Assessment, 1lbyea2025001-print-pdf.*

### 4.      Libya faces significant governance weaknesses across key state functions.

### 4.      Libya faces significant governance weaknesses across key state functions.

### Corruption and governance weaknesses — summary of findings
- The operation of the oil and gas sector and of state-owned enterprises is affected by corruption risks with macroeconomic implications.
- Corruption affects the banking sector, public financial management and public service.
- Recruitment of ghost workers aggravates fiscal challenges.
- Informal payments, deficient procurement processes, and falsified service delivery are persistent problems.
- Procurement processes are often opaque and fragmented across agencies, with frequent use of non-competitive methods and limited public disclosure of procurement plans, contract awards, and implementation results.
- The lack of a unified digital platform exacerbates risks of favoritism and inefficient public spending.
- Ineffective oversight mechanisms, lack of transparency in budget allocations and tax collection, have facilitated rent-seeking, favoritism, and waste of public resources.
- The lack of standardized valuations of goods and customs enables fraud.
- Manual processes in the public financial management cycle are prevalent, creating opportunities for manipulation and side payments.
- Inadequate oversight over the extractive industries and the electricity sector further facilitates corruption.
- Libya’s fuel subsidy policy, coupled with corruption and the resulting high risk of diversion of oil products has led to widespread fuel smuggling and market distortions, exacerbating macro-critical governance vulnerabilities.
- Despite limited population and industrial growth, electricity and fuel demand has surged—driven largely by inflated claims and systemic leakage.
- Governance failures at the NOC include politicized appointments, lack of accountability, absence of compliance and risk management units, and opaque procurement processes, exacerbated by a weakened legal department and lack of internal safeguards.
- Although some anti-corruption clauses exist in contracts, enforcement is weak.

### Anticorruption legal framework and enforcement — key findings
- Libya’s anti-corruption legal framework remains fragmented and not in line with international standards.
- The Penal Code of 1953 criminalizes bribery, embezzlement, and abuse of office, but definitions overlap (e.g., extortion and bribery), and sanctions—such as the five-year maximum penalty for bribery—lack sufficient deterrence.
- Gaps persist, including the absence of criminalization for bribery of foreign public officials and undue influence, limited whistleblower protection, and incomplete asset disclosure obligations.
- A dedicated anticorruption law has not been enacted.
- Legislation on transparency and access to information is missing and legal protections for witnesses and reporting persons is absent.
- Financial disclosure provisions under Law 13-2013 are weak and poorly enforced, with coverage limited to senior officials associated with the former regime; judges and family members of obligated subjects to declare are excluded; declarations are not published and focus on only a few assets without requiring comprehensive disclosure of income, liabilities and interests.
- Anticorruption institutions suffer from fragmentation, overlapping mandates and lack of independence, including the LAB, the ACA, the NACC, and the Prosecutor’s Office.
- The political division between the East and West has led to parallel structures and inconsistent priorities.
- Although formally autonomous, LAB, ACA, and NACC report to Parliament, with deficient follow-up to the implementation of their recommendations by the legislative body.
- Political interference in leadership appointments and operational decisions undermines their credibility; appointment and dismissals of senior officials in oversight bodies are influenced by political or personal affiliations.
- Recent legal reforms have constrained the scope of LAB work and eroded effective oversight over state-owned enterprises and their subsidiaries.
- Efforts to investigate and prosecute corruption remain constrained by coordination gaps and weaknesses in the criminal justice system.
- Financial investigations should be conducted in parallel with corruption cases and supported by effective access, as necessary, to information from domestic and foreign sources.
- While the Office of the Attorney General has extensive powers, it faces political pressures and resource constraints; strengthening prosecutorial independence and providing adequate resources would support more effective enforcement.

### Rule of law and property rights — key findings
- Libya faces severe challenges in upholding the rule of law, with judicial independence compromised by pressure of political and armed actors.
- The independence of judges has been perceived as being influenced by other members of the judiciary and politicians and suffers from limited resources.
- Despite the existence of commercial courts, delays in contract enforcement remain common.
- According to BTI, Libya scored 2 out of 10 on separation of powers, 2 on the independence of the judiciary, and 2 on the protection on private property.
- In the 2025 Heritage Foundation Index of Economic Freedom, it scored 5.7 over out of 100 in property rights.
- According to Arab Barometer, judicial institutions have improved in public trust from 37 percent in 2019 to 55 percent in 2022.
- The Land Registry has been under a moratorium on new registrations since 2011, limiting ownership claims and creating a risky environment for investors.
- Zoning regulations exist but are rarely applied.
- The dysfunctional property rights framework has impacted access to credit: without a functioning land registry and clear, enforceable property titles, real estate cannot reliably serve as collateral for loans.

### Sectoral governance: extractives, energy, and NOC governance
- Weak oversight in extractive industries and the electricity sector facilitates corruption.
- Fuel subsidy policy, high risk of diversion of oil products, and smuggling have created market distortions and macro-critical governance vulnerabilities.
- Electricity and fuel demand surges are driven largely by inflated claims and systemic leakage.
- NOC governance failures include politicized appointments, lack of accountability, absence of compliance and risk management units, opaque procurement processes, and a weakened legal department and internal safeguards.

### Policy recommendations (selected and organized by theme)
- Public Financial Management / Corruption Risks (Implementation Agency shown)
  - 1. Publish an annual budget law, mid-year review, and end-year financial statement. (MOF)
  - 2. Assign an agency with powers to improve the procurement system. (ACA)
  - 3. Modernize the procurement legal framework. (ACA)
  - 4. Establish a centralized digital procurement portal, capable of collecting beneficial ownership data. (ACA)
  - 5. Adopt a risk-based protocol to customs inspections. (MOF)
- Transparency
  - 6. Adopt a Law on Transparency and Access to Information aligned with Articles 10 and 13 of UNCAC and with the 2017 OECD Recommendation of the Council on Open Government. (ACA)
- Institutions
  - 7. Enhance operational independence and technical capacity of the LAB by ensuring secure, multi-year budgetary allocations and adopting measures to shield its leadership from political interference. (LAB)
  - 8. Develop a performance monitoring framework for audits and expand LAB's access to information, including from SOEs and subsidiaries. (LAB)
  - 9. Streamline mandates of enforcement agencies. (ACA, LAB, NACC)
- Enforcement
  - 10. Introduce transparent, merit-based procedures for appointment of anticorruption prosecutors. (MOJ)
- Extractives / Fuels
  - 11. Adhere to the EITI, prioritizing the production of accurate data on production and exports of oil. (NOC)
  - 12. Strengthen NOC's governance framework by adopting:
    - i. Clear separation of board’s supervisory role from management;
    - ii. Transparent and merit-based selection criteria of Executive Director;
    - iii. Improve rules to ensure qualifications and independence of board members;
    - iv. Adopt system of performance evaluations for both the board and management. (NOC)
  - 13. Strengthen NOC’s control function by adopting:
    - i. A Risk Audit Department reporting to the board;
    - ii. A Compliance Department to oversee procurement, ethics, and operational policies;
    - iii. A state-of-the-art Ethics Code. (NOC)
- Rule of Law
  - 14. Reactivate the registration function of the National Registry of Property. (MOJ / Judiciary)

*Source: LIBYA — STAFF REPORT FOR THE 2025 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX (excerpts).*

---


_Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1lbyea2025001-print-pdf.pdf_