Libya: Staff Concluding Statement of the 2025 Article IV Mission

IMF News, April 16, 2025

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The dispute over the leadership of the central bank last August and the associated disruption in oil production weighed on growth in 2024.
Output is estimated to have contracted in 2024, driven by the forced contraction in hydrocarbon GDP, partly offset by expansion in non-oil activities fueled by sustained government spending.
Following the resolution of the dispute, oil production has rebounded and is now approaching 1.4 million barrels per day.
The next Article IV mission is expected in the Spring of 2026.

Official inflation stood at close to 2 percent in 2024, reflecting extensive subsidies and affected by measurement issues.
Subsidized goods and services account for around one-third of the consumer price index (CPI).
The CPI was based on an outdated consumption basket that covered only Tripoli, likely leading to inaccurate estimation of inflation given significant regional price variation.
The Bureau of Statistics and Census (BSC) has introduced a revamped CPI with expanded geographical coverage and updated weights.

Preliminary estimates point to fiscal and current account deficits in 2024.
Government spending continued to rise amid declining oil revenues due to the shutdown of oil production and exports.
The current account balance is estimated to have turned from a large surplus in 2023 to a deficit in 2024 due to the reduction in hydrocarbon exports, whereas imports remained broadly unchanged.
Reserves remained at a comfortable level, bolstered by the revaluation of the CBL’s gold holdings.

The banking sector has successfully increased capital and enhanced its financial soundness metrics.
In late 2022, the CBL instructed banks to increase their capital to meet Basel II regulatory requirements; the majority of banks have met their targets in 2024, resulting in a doubling of paid-in capital.
Banks’ financial soundness indicators strengthened, with significant improvements in nonperforming loan ratios.
Private sector credit growth remained strong in 2024, primarily in the form of Murabaha financing to retail customers and salary advances to public employees, whereas corporate financing was limited.

The CBL devalued the dinar by about 13 percent in early April and further tightened foreign exchange restrictions to alleviate pressures on reserves.
In the absence of conventional monetary policy tools, controlling fiscal expenditure remains the preferred policy response consistent with Libya’s macroeconomic framework (see IMF Country Report No. 24/206).
Authorities should reduce the gap between the official and the parallel exchange rates, including by phasing out the foreign exchange tax and easing foreign currency restrictions, while protecting international reserves.
The CBL needs to develop an effective domestic monetary policy framework with a well-defined policy rate to serve as a reference for banks.
The CBL’s recent efforts to inject new banknotes, promote electronic payments, and accelerate financial inclusion are welcome; additional measures are needed to tackle cash hoarding and restore confidence.

To foster economic diversification, it is critical to address challenges facing the private sector: high informality, lack of access to finance and foreign currency, dominance of public employment, and poor governance.
Banks lack a well-defined framework for extending credit since the issuance of the law banning interest.
Authorities should initiate a comprehensive economic reform plan focused on private sector development, starting with upgrading regulatory frameworks, enhancing access to finance, and improving the security situation.
Governance reforms are key: notable steps include improvements in banks’ governance frameworks, publication of annual reports of the Libyan Audit Bureau, and adoption of a country anticorruption strategy.
Significant macro-critical governance vulnerabilities remain linked to the administration of state-owned enterprises, public spending, the rule of law, and overall fragility; timely action will support a better business environment.

Real GDP growth is projected to rebound in 2025, primarily driven by an expansion of oil production, before moderating in the medium term.
Non-hydrocarbon growth is set to remain around its 2021-2024 average (5-6 percent) throughout the forecast horizon, supported by sustained government spending.
The current account and fiscal balances are slated to remain under pressure over the medium term, driven by projected lower oil prices and continued demands for the government to spend its entire revenues.
The outlook is subject to elevated uncertainty and risks are tilted to the downside, particularly from domestic political instability, oil price volatility, intensifying regional conflicts, and deepening geo-economic fragmentation.

Pursue efforts to establish a unified budget to identify priority spending and enhance fiscal credibility.
In the meantime, resist pressure to increase current spending, particularly on salaries and subsidies, and build capacity for more effective public financial management, including by strengthening the Macroeconomic Unit within the Ministry of Finance.
In the medium term, undertake substantial fiscal efforts to preserve sustainability and achieve intergenerational equity, including by introducing well-calibrated and orderly wage and energy subsidy reforms and mobilizing nonhydrocarbon revenues.
Reduce the gap between official and parallel exchange rates by phasing out the foreign exchange tax and easing foreign currency restrictions, while protecting reserves.
Develop a domestic monetary policy framework with a well-defined policy rate.
Continue enhancing the AML/CFT framework, align the legal framework with international standards, and ensure AML/CFT mitigation is properly coordinated and risk-focused to support correspondent banking relationships.
Enhance transparency, accountability, financial literacy, and develop attractive savings plans to tackle cash hoarding and foster credit provision to the private sector.

Source: Libya: Staff Concluding Statement of the 2025 Article IV Mission (April 16, 2025).