Washington, DC: A staff team from the International Monetary Fund (IMF) led by Mr. Dmitry Gershenson visited Tunis, Tunisia, during December 2–6, to discuss Libya’s latest economic developments, the macroeconomic outlook, and the country’s policy and reform priorities. At the conclusion of the visit, Mr. Gershenson made the following statement:
We welcome the agreement to resolve the dispute over the leadership of the Central Bank of Libya (CBL). The settlement—reached in late September with the support of the UNSMIL and other international partners—appointed a new governor and a new Board of Directors of the CBL, a positive milestone after a decade of Board inactivity. We look forward to continuing the engagement with the CBL and the other authorities. Going forward, Libya needs a more orderly process for leadership transition to foster stability and enhance governance.
Staff and the authorities are in broad agreement on the recent macro developments and outlook. Following the disruption in oil production in August and September, projected GDP growth and the fiscal and external balances for 2024 have been revised down. By the same token, the GDP growth forecast for 2025 has been revised up to reflect the expected rebound in oil production. The medium-term projections remain broadly unchanged.
IMF staff’s baseline forecast is subject to a number of downside risks, including lower-than-expected oil prices and renewed political tensions. These could limit the available fiscal space. Accordingly, it is critical for the Libyan authorities to agree on spending priorities through an approved unified budget for 2025. As mentioned in the 2024 Article IV Consultation report, such a budget will help avoid pro-cyclical spending and improve the management of Libya’s resources.
Against this backdrop, and in line with the IMF’s previous recommendations, controlling fiscal expenditure remains the preferred policy approach consistent with Libya’s current macroeconomic framework. Staff discussed with authorities the importance of developing monetary policy tools which would help the central bank safeguard the efficient functioning of the foreign exchange market.
We support the CBL’s efforts to facilitate access to foreign exchange and alleviate shortages of local currency. The foreign exchange tax was reduced from 27 to 15 percent, and the central bank raised limits on letters of credit and on allowances for personal use and took steps to regulate activities of foreign exchange bureaus. The gap between the official (plus tax) and the parallel exchange rates has narrowed from 13 percent in July to 8 percent in November. The CBL is addressing local currency shortages through injecting liquidity into the banking system and expanding electronic payment services. In parallel, the banking sector has been raising capital in line with the CBL guidelines.
Staff reiterated the need for structural and subsidy reforms in Libya. Discussions focused on governance reforms across the public sector, and the planned comprehensive review of governance for the 2025 Article IV could serve as a foundation for these reforms. Reforming energy subsidies, which currently account for around 20 percent of GDP, remains on the authorities’ agenda. These untargeted subsidies continue to be a drain on resources and limit spending on productive sectors. In the medium term, the key objective remains the diversification away from hydrocarbons while promoting stronger and more inclusive private sector-led growth.
We welcome the continued progress in enhancing governance of the banking sector and the AML/CFT framework, improving data collection, and encouraging fintech innovation. The IMF is committed to offer capacity development (CD) in these and other areas as needed. In 2024, CD has been provided in the areas of tax policy, budget preparation and revenue administration. The planned CD activities will focus on national accounts, consumer price index, reserve management, and monetary policy.
The next Article IV mission is expected in April 2025.
The mission thanks the Libyan authorities and other counterparts for their hospitality, constructive policy dialogue, and productive collaboration.
