IMF Executive Board Concludes 2023 Article IV Consultation with Libya
IMF News, May 25, 2023
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- Published: May 25, 2023
Background and resumption of consultations
- Article IV consultation concluded on Wednesday, May 24, 2023, after a decade-long hiatus.
- Causes of hiatus: fragmentation following the fall of the Ghaddafi regime in 2011, suspension of key economic indicators, and complicated policymaking.
- Recent developments enabling resumption:
- Authorities made commendable progress towards improving data sharing and collection, and transparency.
- Flexibility from the IMF’s new Fragile and Conflict-Affected States (FCS) strategy.
Macroeconomic developments (recent years)
- Oil production and revenues experienced exceptional swings since 2011; GDP closely tracks oil production.
- 2020: sharp contraction due to an oil blockade and decline in oil prices, resulting in ballooning external and fiscal deficits and declining foreign exchange reserves.
- 2021–2022: rebound in oil prices and resumption of oil production produced budget and current account surpluses in both 2021 and 2022.
- Inflation: rose from 2.9 percent in 2021 to 4.5 percent in 2022; period-average CPI figures in table: 14.0, -2.9, 1.5, 2.9, 4.5, 3.4.
Outlook and key risks
- Hydrocarbon dependence:
- Hydrocarbon production is projected to grow by around 15 percent in 2023 following an increase in oil production from 1 million barrels per day in 2022 to around 1.2 million barrels per day in 2023 and increase gradually thereafter.
- Baseline projection (assuming fiscal spending remains contained):
- Fiscal and external surpluses are projected to gradually decline over coming years.
- Key downside risks:
- Lower oil prices due to lower-than-expected global growth.
- Renewed conflict and/or social unrest leading to disruptions in oil production.
Executive Board assessment — findings and priorities
- Directors welcomed resumption of Article IV consultations after 10-year hiatus and commended authorities for reengagement despite lingering political challenges.
- Limitations to policy implementation noted due to political fragmentation; urgent need to intensify efforts to resolve conflicts and address substantial economic challenges.
- Capacity development needs identified:
- Modernize fiscal frameworks and monetary and financial sector policies.
- Enhance data provision and statistical capacity.
- Support economic diversification away from hydrocarbons.
- Governance and transparency:
- Encourage enhanced transparency, strengthened institutions, and action to address corruption and governance concerns.
- Fiscal credibility and public financial management:
- Call for an agreed and transparent budget.
- Avoid procyclical spending.
- Diversify the tax base.
- Gradually reform untargeted energy subsidies to make room for additional social spending and infrastructure development.
- Strengthen management of state-owned enterprises and build a medium-term framework.
- Monetary and financial sector:
- Reunification of the Central Bank of Libya is crucial for strengthening monetary policy, supporting financial stability, and fostering private sector development.
- Frequent changes to the currency peg should be avoided to maintain confidence in the exchange rate as the nominal anchor and to better protect foreign exchange reserves.
- Commended central bank for introducing wide-ranging regulations to modernize the financial sector, while noting limited capacity.
- Encourage continued strengthening of the AML/CFT framework, close monitoring of bank capitalization, reopening the property registry to mitigate credit risk, and long-run divestment of Central Bank of Libya holdings in commercial banks to allow independent operation.
- Given the prohibition on interest, further development of Islamic finance products and Islamic finance-compliant instruments recommended to help manage system liquidity, support monetary policy, and mobilize credit to the private sector.
Policy recommendation on consultations
- It is recommended that the next Article IV consultation with Libya be held on the standard 12-month cycle.
Selected economic indicators (from Table 1)
- Real GDP (annual percentage change, 2018–2028): 7.9; -11.2; -29.5; 28.3; -11.4; 18.8; 8.2; 7.4; 4.7; 2.5; 2.6.
- Nonhydrocarbon real GDP (annual percentage change, 2018–2028): -8.5; -11.6; -19.4; 5.9; -1.2; 17.1; 6.8; 6.6; 6.4; 6.3.
- Hydrocarbon real GDP (annual percentage change, 2018–2028): 21.0; -10.9; -35.5; 45.0; -17.0; 20.0; 8.3; 7.7; 3.6; -0.1; 0.0.
- Nominal GDP in billions of Libyan dinars (2018–2028): 104.7; 96.8; 65.1; 159.0; 178.5; 198.8; 210.0; 221.9; 231.6; 236.8; 242.9.
- GDP deflator (annual percentage change, selected years): 4.2; -4.8; 90.4; 26.8; -6.3; -2.3; -1.6; -0.3; -0.2.
- CPI inflation, period average (2018–2023): 14.0; -2.9; 1.5; 2.9; 4.5; 3.4.
- Central government revenues (percent of GDP, 2018–2028): 46.9; 59.2; 35.1; 79.5; 100.0; 64.4; 62.4; 61.4; 59.0; 56.3; 53.6.
- Of which: Hydrocarbon revenues (percent of GDP, 2018–2028): 32.0; 32.4; 8.1; 78.1; 97.9; 62.1; 60.4; 59.4; 57.0; 54.1; 51.3.
- Expenditure and net lending (percent of GDP, 2018–2028): 37.6; 47.3; 57.3; 64.7; 76.5; 55.8; 53.5; 52.5; 50.9; 50.5; 49.8.
- Overall balance (percent of GDP, 2018–2028): 9.4; 11.9; -22.3; 14.8; 23.6; 8.5; 8.9; 8.8; 5.8; 3.8.
- Gross official reserves (2018–2028): 77.6; 76.0; 69.4; 77.7; 82.0; 85.5; 89.4; 93.5; 97.4; 100.3; 102.2.
- Gross official reserves in months of next year's imports (2018–2028): 37.2; 63.8; 29.0; 40.4; 49.6; 67.1; 78.2; 83.9; 89.9; 94.0.
- Total foreign assets (including LIA investments, 2018–2028): 149.9; 149.1; 142.7; 151.1; 156.4; 161.8; 167.4; 172.9; 177.9; 181.8; 184.8.
- Official exchange rate (LD/US$, period average, selected years): 1.37; 1.40; 1.39; 4.51; 4.81.
- Parallel market exchange rate (LD/US$, period average, selected years): 6.15; 4.28; 5.57; 5.06; 5.08.
- Crude oil production (mbd, selected years and projections): 0.97; 1.10; 0.30; 1.2; 1.0; 1.20; 1.30; 1.45.
- Crude oil price (US$/bbl, WEO adjusted for Libya, selected years): 68.5; 57.1; 37.8; 89.6; 68.0; 64.1; 62.3; 60.8; 58.0.
Press Release No. 23/181, May 25, 2023, IMF Communications Department.