The success of Libya’s reforms will hinge on political stability and the development of institutional capacity, according to the International Monetary Fund.
The North African country should focus on strengthening institutions and the rule of law, the Washington-based lender said on Monday.
The Libyan government should avoid spending more when the economy is performing well and save for times when the economy might slow down to guard against risks from lower oil revenues and a potential loss of reserves, the IMF said.
The country "urgently" needs a transparent budget that reduces costs associated with high spending on public sector wages and subsidies, the fund added.
Libya, the seventh-largest crude oil producer in Opec, has also been looking to boost production after years of being plagued by conflict and political instability.
The country has had little peace since the 2011 Nato-backed uprising against Muammar Qaddafi, and it split in 2014 between warring eastern and western factions. Major fighting concluded following a ceasefire in 2020.
Brent crude, the benchmark for two-thirds of the world’s oil, surged to nearly $140 a barrel following Russia’s invasion of Ukraine last year. It is currently trading at $72.66 a barrel.
In 2021, oil revenue accounted for an estimated 98 per cent of Libya’s total government revenue, according to the country's central bank.
The IMF said that oil and gas production would continue to be a “critical” part of the country’s economic future.
Meanwhile, Libya’s economy is anticipated to grow by 15 per cent in 2023 after shrinking by an estimated 18.5 per cent in 2022, according to IMF data.
This is “following an increase in activity after an oil blockade limited production in 2022. However, the key challenge will be to diversify away from oil and gas while fostering stronger and more inclusive private sector growth”, the IMF said.
“Libya urgently needs a transparent budget that reduces costs associated with high spending on public sector wages and subsidies,” the fund said.
Government spending is mainly allocated to public sector salaries, employing about 2.2 million individuals or roughly one-third of Libya’s population, the IMF said.
“Subsidies and grants amount to around one-quarter of spending and fuel subsidies are particularly problematic, with the domestic price of gasoline at US 3 cents per liter, the second lowest in the world.”
The Libyan central bank’s large stock of international reserves, supported by a fixed exchange rate, capital controls, and temporary measures, played a key role in addressing swings in oil production and revenue following the revolution in 2011, aiding the country's recovery.
The country's international reserves are more than 200 percent of its gross domestic product, the IMF said.
“Libya needs an economic strategy that clearly articulates a way forward for the nation,” the IMF said.
“This would be an opportunity to rally the public behind a plan that optimises the use of oil revenue to diversify the economy and break away from the Ghaddafi-era policies.”
