Statement by the IMF Staff Representative

This 2004 Article IV Consultation highlights that the Libyan economy remains largely state controlled and heavily dependent on the oil sector. Since the lifting of the Libya-specific trade sanctions of the United Nation and United States in September 2003 and September 2004, respectively, the pace of economic and structural reforms has picked up somewhat, with the implementation of measures aimed at enhancing the role of the private sector in the economy. However, these reforms continue to be implemented in an ad hoc and nontransparent manner.

Abstract

This 2004 Article IV Consultation highlights that the Libyan economy remains largely state controlled and heavily dependent on the oil sector. Since the lifting of the Libya-specific trade sanctions of the United Nation and United States in September 2003 and September 2004, respectively, the pace of economic and structural reforms has picked up somewhat, with the implementation of measures aimed at enhancing the role of the private sector in the economy. However, these reforms continue to be implemented in an ad hoc and nontransparent manner.

1. This statement provides information on recent developments in Libya that has become available since the staff report was circulated to the Executive Board on January 5, 2005. The new information does not change the thrust of the staff appraisal.

2. Oil price. After the issuance of the staff report, the WEO oil price projections were revised upward. The upward revisions are particularly significant for 2005 and 2006; the increases are $3.5 and $2 per barrel, respectively. As a result, both the fiscal and external current account balances are projected to register, on average, surpluses that are larger than reported in the staff report, by about 2.5 percent of GDP per year during 2005–06.

3. Lockerbie settlement. In 2004, only $1.1 billion was paid and not $1.6 billion as indicated in Tables 3 and 5 and Footnote 4 of the staff report. The authorities informed the staff that the remaining $540 million will be paid after the U.S. has removed Libya from the list of countries that sponsor terrorism.

4. Policy developments. The General People’s Congress (GPC) held its annual meeting during January 8–12, 2005. The issues that were debated included, among others: (i) the privatization of state-owned economic units; (ii) the 2005 budget; (iii) the new draft Banking Law; and (iv) the Anti-Money Laundering (AML) law. Only partial information has been communicated to the staff on the outcome of the GPC meeting, but the staff was told that the 2005 budget law, and the banking and the AML laws were approved by GPC. The staff has not received copies of the approved banking and AML laws.

5. Fiscal issues. Only limited information on the 2005 budget was made available to the staff. The information provided by the authorities includes: (i) a new budget oil price of $26 per barrel, compared to $22 in staffs projections for 2005; (ii) total non-oil budgetary revenues of 7 percent of GDP, compared with staff projections of 5% percent of GDP; and (iii) total budgetary expenditure of 38 percent of GDP, compared with staff projections of 27 percent of GDP. However, data on projected oil budgetary revenues and extrabudgetary spending are missing, which complicates the analysis of the authorities’ budget. A preliminary assessment of the available information regarding the 2005 budget, combined with staffs projected oil revenue and extrabudgetary expenditure would result in a consolidated budget surplus of about 13 percent of GDP, compared to 22 percent of GDP in the revised staff projections based on the January 2005 WEO oil prices. While the staff has not had the opportunity to discuss the 2005 budget with the authorities, it has strong reservations on the authorities’ budgeted increases for nonoil budgetary revenues and nonwage budgetary expenditures. Indeed, in the staffs view, the projected 30 percent increase in non-oil revenue is unrealistic in the absence of any revenue enhancing measures; and the limited absorptive capacity of the Libyan economy renders the 85 percent increase in the development budget optimistic. A staff team is scheduled to visit Libya in February and will clarify all these issues with the authorities.

6. Monetary issues. The staff has also been informed that many of its recommendations have been incorporated in the new banking law. Under the new law: (i) the composition of the seven member Central Bank of Libya (CBL) board includes only one representative from government ministries; (ii) the CBL has been given the authority to issue regulations related to monetary and banking issues; (iii) foreign banks are allowed to open branches in Libya; and (iv) more emphasis is put on improving banking supervision. Also, the Governor of the CBL has now the authority to establish a monetary policy committee responsible for key policy decisions; commercial banks have been given permission to lend to foreign companies investing in Libya; and interest rates on commercial banks’ deposits held at the CBL have been unified at 2.5 percent and only paid on deposits held for more than three months.

Socialist People’s Libyan Arab Jamahiriya: Staff Report for the 2004 Article IV Consultation
Author: International Monetary Fund