Libya’S Economy Shows Improved Outlook

(MENAFN- Brazil-Arab News Agency (ANBA)) São Paulo – After the leadership dispute at the Central Bank impacted oil production and exports-and consequently Libya's economic growth last year-the Arab country now has a brighter economic outlook for this year, tied to the development of the oil sector, according to a report released by the International Monetary Fund (IMF) on Wednesday (16).

“Real GDP growth is projected to rebound in 2025, primarily driven by an expansion of oil production, before moderating in the medium term,” the Fund said in a statement issued after a staff visit to Libya.

Last year, the IMF estimates that oil production contracted, but the downturn in the sector was partially offset by the expansion of non-oil activities, driven by government spending. Currently, with the dispute over the Central Bank resolved, Libya's oil production stands at 1.4 million barrels per day, according to the organization.

Although public spending helped boost the economy last year, it poses a challenge to the country's fiscal balance. With these expenditures rising amid the halt in oil production and exports-and with imports remaining unchanged-the IMF estimates the current account balance shifted from a large surplus in 2023 to a deficit in 2024. International reserves, however, remain at a comfortable level, supported by the revaluation of gold reserves by the European Central Bank.

Earlier this month, Libya's Central Bank devalued the local currency, the dinar, by 13%, further tightening exchange controls and easing pressure on reserves. The IMF recommends that authorities reduce the gap between the official and parallel exchange rates, including gradually phasing out the foreign exchange tax and easing currency restrictions, while also safeguarding international reserves.

The IMF suggests that, in the absence of conventional monetary policy tools, fiscal spending control should be Libya's preferred response for managing its economy. However, the Fund acknowledges that, given Libya's political instability and institutional fragmentation, addressing spending pressures may not be feasible in the short term.

The IMF report also includes information on other economic indicators, such as inflation, which stood at around 2% in 2024, reflecting government subsidies and measurement issues, according to the organization. Subsidized goods and services account for about one-third of Libya's Consumer Price Index (CPI), the Fund said.

The IMF also says that Libya's banking sector has successfully increased its capital and improved its financial soundness indicators. It recommends that the country continues its efforts to establish a unified budget, that the government also promote economic diversification, essential for the private sector, and that governance reforms be implemented to support sustainable growth.

Although stating that the country's economic growth in 2025 is expected to again be tied to the oil sector, the IMF estimates that growth in non-hydrocarbon sectors will remain around the average of 5% to 6% from 2021 to 2024. These percentages are expected to continue over the forecast period, supported by sustained government spending.

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Translated by Guilherme Miranda

©Mahmud Turkia/AFP

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