Libya's economy expected to rebound on oil boost but reforms needed, IMF says

Growth will also be supported by the non-hydrocarbon sector amid steady government spending

A market in Tripoli. Libya's inflation hovered around 2 per cent in 2024, according to the International Monetary Fund. AFP

Libya's economy is projected to rebound in 2025, due to an expected increase in its oil production following disruption in output last year that hit growth, the International Monetary Fund has said while urging more reforms.

The country's real gross domestic product grew 2.4 per cent last year after a healthy 10.2 per cent in 2023, rebounding from a recession-riddled 2022. That growth was supported by increased oil production, made possible by an improved security situation, as well surges in private consumption and exports, IMF data shows.

Real GDP growth this year will also be boosted by the non-hydrocarbon sector, which is forecast to remain around its 2021-2024 average growth rate of between 5 and 6 per cent amid steady government spending, the Washington-based fund said in a statement concluding its delegation's mission to the Opec member.

The IMF did not provide a figure for its forecast, which it expects to moderate in the medium term. It previously projected 2025 real GDP growth at 13.7 per cent, which would be the highest in the Middle East and North Africa region.

However, its latest outlook is still subject to factors including Libya's political environment, intensifying regional conflicts and oil price volatility.

"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 IMF said.

Inflation, meanwhile, hovered near 2 per cent in 2024, reflecting extensive subsidies and affected by measurement inaccuracies, the IMF said. The country's consumer price index was based on an outdated consumption basket that covered only Tripoli, probably leading to an imprecise estimation of inflation.

"Substantial fiscal efforts will be needed to preserve sustainability and achieve intergenerational equity, including by introducing well-calibrated and orderly wage and energy subsidy reforms and mobilising nonhydrocarbon revenues," the IMF said.

Libya’s economy is heavily dependent on oil and gas. In 2023, the sector accounted for about 97 per cent of the country's exports, more than 90 per cent of fiscal revenue and 68 per cent of GDP, according to data from the African Development Bank Group.

However, Libya's situation has remained unstable, which has the potential to turn off companies from investing in the country. The political and stability situations may cause oil price fluctuations, which may potentially harm the security of investments and profitability, the IMF said.

That instability spilled over into the oil sector last year. In December, Libya's National Oil Company was forced to declare force majeure at its Zawiya Refinery after clashes inflicted damage in the facility, adding to its economic woes.

In January, Libya was, for the first time, allowed by the UN to reinvest proceeds from the $70 billion of assets bought with its oil wealth since sanctions were imposed in 2011.

Tripoli is also working to stabilise its private sector, despite continuing political uncertainty and weakness of the regulatory framework for businesses.

"The lack of access to finance and foreign currency, dominance of public employment and poor governance are major impediments to growth in Libya," the IMF said.

"The authorities should initiate a comprehensive economic reform plan that focuses on private sector development, starting with upgrading regulatory frameworks, enhancing access to finance and improving the security situation."

Libya's banking sector, meanwhile, was able to "successfully" boost its capital and financial soundness metrics, with significant improvements in non-performing loan ratios, the IMF acknowledged.