Public Information Notice: IMF Executive Board Concludes 2010 Article IV Consultation with the Socialist People’s Libyan Arab Jamahiriya
IMF News, February 15, 2011
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- Published: February 15, 2011
Background — macroeconomic developments and policy context
- Nonhydrocarbon growth:
- Grew by an estimated 6 percent in 2009, mainly driven by investments in construction and in services.
- Strengthened to about 7 percent in 2010 as a result of large public expenditures.
- Hydrocarbon output and overall GDP:
- Hydrocarbon output declined significantly in 2009 due to compliance with the OPEC quota, resulting in a contraction of overall real Gross Domestic Product (GDP) by an estimated 1.6 percent in 2009.
- Overall growth increased markedly by an estimated 10 percent in 2010 reflecting a sharp increase in oil production.
- Labor market and inflation:
- Unemployment has remained high, particularly among the youth.
- Inflation is estimated to have picked up to about 4.5 percent in 2010 as higher oil revenue increased domestic liquidity and international commodity prices increased.
- Fiscal developments:
- Fiscal surplus narrowed substantially to about 7 percent of GDP in 2009 owing to a sharp decline in oil revenue that more than offset the reduction in public outlays.
- The fiscal surplus is estimated to have increased in 2010 mainly owing to the recovery in oil revenue.
- In 2010, current expenditure increased by an estimated 19 percent compared to 2009, largely due to full explicit accounting of energy subsidies and a 15 percent increase in the wage bill.
- Capital expenditure increased by an estimated 18 percent in 2010, reflecting prioritization of investment projects.
- External sector and reserves:
- External current account surplus increased to an estimated 20 percent of GDP in 2010, from 16 percent of GDP in 2009.
- Net foreign assets of the Central Bank of Libya (CBL) and the LIA are estimated to have reached $150 billion at end-2010 (the equivalent of almost 160 percent of GDP).
- Export earnings rebounded in line with the recovery in crude oil output and prices; imports picked up due to strong domestic demand but remain about a third lower than exports.
- Financial sector and monetary developments:
- Broad money is estimated to have grown by about 10 percent in 2010, compared to 11 percent in 2009.
- Commercial bank lending to the private sector and nonfinancial public enterprises has been constrained by lack of adequate borrower documentation, tightening of regulation, and high liquidity at public enterprises.
- Excess liquidity has remained high in the banking system; financial intermediation is weak compared to neighboring countries.
- An ambitious program to privatize banks and develop the nascent financial sector is underway: banks have been partially privatized, interest rates decontrolled, and competition encouraged.
- Ongoing efforts to restructure and modernize the CBL are underway with assistance from the Fund.
- Capital and financial markets are still underdeveloped; there are no markets for government or private debt and the foreign exchange market is small.
- Structural and legal reforms:
- Passing in early 2010 of a number of far-reaching laws intended to foster private sector development and attract foreign direct investment.
- Success of new laws depends on promoting inter-agency coordination, open consultation with legal and business communities, and establishing permanent bodies to monitor, assess, and oversee implementation.
- Need for comprehensive civil service reform to facilitate more effective wage and employment policies for a young and growing labor force.
- Policy responses to regional developments and food prices:
- To counter the impact of higher global food prices, the government abolished, on January 16, taxes and custom duties on locally-produced and imported food products.
- In January, the government announced the creation of a large multi-billion dollar fund for investment and local development focusing on providing housing for the growing population.
- Note on data coverage:
- The 2010 data are for end-July (note 1).
- The 2010 exchange rate data are for November (note 2).
Executive Board assessment — evaluation and recommendations
- Overall appraisal:
- Directors welcomed Libya’s strong macroeconomic performance and the progress on enhancing the role of the private sector and supporting growth in the non-oil economy.
- The fiscal and external balances remain in substantial surplus and are expected to strengthen further over the medium term; the outlook for Libya’s economy remains favorable.
- Key challenges identified:
- Need to provide employment opportunities for a young and growing labor force.
- Steadfast implementation of reforms to diversify the economy and reduce high dependence on oil revenue.
- Fiscal policy guidance:
- Directors supported the overall fiscal stance and noted that the increase in capital spending in 2010 will support private sector development.
- Emphasized the need to contain the increase in current spending and ensure the quality of spending.
- Encouraged the authorities to cast fiscal policy in a medium-term framework to minimize the impact of oil price volatility.
- Commended efforts to strengthen public financial management, including the new and simplified income tax law and the effective unification of the current and investment budgets.
- Encouraged establishment of a treasury single account, improvement in consistency of budget classification, and streamlining procedures to enhance expenditure management.
- Monetary and financial sector recommendations:
- Welcomed the introduction by the CBL of a new 28-day certificate of deposit and its establishment of an overnight facility as steps to enhance the monetary policy framework.
- Noted importance of addressing factors behind large excess liquidity in the banking system, including by establishing the treasury single account and reforming the specialized credit institutions (SCIs) to reduce their on-lending activities and curtail budget allocations.
- Encouraged continued strengthening of bank supervision, focusing on capacity building and enhancing coordination between on-site and off-site supervision units.
- Directors agreed that the dinar’s peg to the Special Drawing Rights (SDR) remains appropriate by providing a strong monetary anchor and noted the staff’s assessment that the dinar’s exchange rate is broadly aligned with fundamentals.
- Sovereign wealth fund and fiscal transparency:
- Welcomed the passing of the Libyan Investment Authority law, which enhances its regulatory and operational framework.
- Noted that investment funds outside the budget can complicate public expenditure management and that it is important to ensure CBL’s involvement with these funds does not conflict with monetary policy objectives.
- Structural reform and statistics:
- Encouraged authorities to further advance structural reforms to support private sector development and to implement the laws passed in the last year, complemented by policies aimed at adapting the labor force to economic transformation.
- Encouraged authorities to continue to improve economic and financial statistics.
Libya: Selected Economic and Financial Indicators, 2006–10 — key statistics
- Quota = SDR 1,123.7 million
- Population (million) = 6.3 (2009)
- National income and prices (Annual percentage change, unless otherwise indicated)
- Real GDP: 2006 = 5.9; 2007 = 6.0; 2008 = 2.8; 2009 = -1.6; 2010 = 10.3
- Nonhydrocarbon: 2006 = 7.9; 2007 = 9.9; 2008 = 7.0; 2009 = (not separately tabulated); 2010 = (about 7 percent reported in text)
- Hydrocarbon: 2006 = 4.3; 2007 = (not separately tabulated); 2008 = -8.9; 2009 = (not separately tabulated); 2010 = 14.0
- Per capita GDP in thousands of U.S. dollars: 2006 = 9.5; 2007 = 11.8; 2008 = 14.3; 2009 = 12.1; 2010 = (not separately tabulated)
- CPI inflation: 2006 = 1.4; 2007 = 6.2; 2008 = 10.4; 2009 = 2.4; 2010 = 4.5
- Central government finances (In percent of GDP)
- Revenue: 2006 = 64.1; 2007 = 66.0; 2008 = 70.1; 2009 = 59.3; 2010 = 61.0
- Expenditure and net lending: 2006 = 31.0; 2007 = 37.4; 2008 = 39.8; 2009 = 52.3; 2010 = 48.1
- Current expenditure: 2006 = 13.4; 2007 = 14.1; 2008 = 15.6; 2009 = 24.5; 2010 = 22.6
- Capital expenditure: 2006 = 17.6; 2007 = 23.2; 2008 = 24.2; 2009 = 27.9; 2010 = 25.5
- Overall balance: 2006 = 33.1; 2007 = 28.6; 2008 = 30.3; 2009 = 12.9; 2010 = (not separately tabulated)
- Non-oil balance (deficit -): 2006 = -26.2; 2007 = -31.1; 2008 = -33.1; 2009 = -45.9; 2010 = -42.1
- Monetary indicators (Changes as a percent of beginning of the year money stock)
- Money and quasi-money: 2006 = 15.0; 2007 = 37.3; 2008 = 47.3; 2009 = 11.1; 2010 = 10.0
- Discount rate 1: 2006 = 4.0; 2007 = 5.0; 2008 = 3.0; 2009 = (not separately tabulated); 2010 = (not separately tabulated)
- Credit to the economy: 2006 = 6.9; 2007 = 7.2; 2008 = 3.7; 2009 = (not separately tabulated); 2010 = (not separately tabulated)
- External sector (In billions of U.S. dollars; unless otherwise indicated)
- Exports: 2006 = 42.8; 2007 = 49.0; 2008 = 62.1; 2009 = 37.1; 2010 = 47.8
- Of which: hydrocarbons: 2006 = 41.7; 2007 = (not separately tabulated); 2008 = 60.7; 2009 = 35.7; 2010 = 46.3
- Imports: 2006 = 12.7; 2007 = 17.2; 2008 = 20.9; 2009 = 22.0; 2010 = 25.3
- Current account balance: 2006 = 28.1; 2007 = 29.8; 2008 = 9.4; 2009 = 15.5; 2010 = (in percent of GDP reported in text as 20 percent)
- Reserves and assets (In percent of GDP)
- Total foreign assets (incl. LIA investments): 2006 = 74.8; 2007 = 100.4; 2008 = 127.2; 2009 = 137.3; 2010 = 152.4
- Of which: gross official reserves: 2006 = 79.4; 2007 = 92.3; 2008 = 98.7; 2009 = 105.4; 2010 = (not separately tabulated)
- In months of next year's imports: 2006 = 35.6; 2007 = 38.2; 2008 = 40.9; 2009 = 38.1; 2010 = 36.9
- Exchange rate
- Official exchange rate (LD/US$, period average): 2006 = 1.28; 2007 = 1.22; 2008 = 1.27; 2009 = 1.25; 2010 = 1.24
- Official exchange rate (LD/US$, end of period): 2006 = 1.29
- Real effective exchange rate (change in percent): 2006 = -1.1; 2007 = 0.7; 2008 = 5.4; 2009 = -0.45
Public Information Notice (PIN) No. 11/23 (February 15, 2011), International Monetary Fund.