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IMF Executive Board Concludes 2009 Article IV Consultationwith the Socialist Peoples Libyan Arab JamahiriyaPublic Information Notice (PIN) No. 09/121

September 21, 2009

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of theIMF's views and analysis of economic developments and policies. With the consent of the country(or countries) concerned, PINs are issued after Executive Board discussions of Article IVconsultations with member countries, of its surveillance of developments at the regional level, ofpost-program monitoring, and of ex post assessments of member countries with longer-termprogram engagements. PINs are also issued after Executive Board discussions of general policymatters, unless otherwise decided by the Executive Board in a particular case. The staff report (usethe freeAdobe Acrobat Readerto view this pdf file) for the 2009 Article IV Consultation with theSocialist Peoples Libyan Arab Jamahiriya is also available.

On August 5, 2009, the Executive Board of the International Monetary Fund (IMF)concluded the Article IV consultation with the Socialist Peoples Libyan Arab

Jamahiriya.1

Background

Libyas overall macroeconomic performance in 2008 was strong, with real GDPgrowing by about 3.8 percent. However, non-oil growth was broad-based andestimated at 8 percent. Oil output increased slightly at the first three quarters of theyear then declined in the last quarter in l ine with OPECs decision to reduce quotas.As a result, production for the year as a whole was similar to its 2007 level. Inflationrose in 2008 to about 10 percent due to higher international commodity prices and amarked increase in public expenditure.

The fiscal surplus remained at about 25 percent of GDP in 2008. Revenue increasedby about 37 percent due to higher oil prices and enhanced tax and customsadministration. At the same time, overall expenditure rose by an estimated 45percent, reflecting large increases in both current and capital outlays. Spendingunder the Wealth Distribution Program (WDP) was limited to LD 3.3 billion(equivalent to about 3 percent of GDP), compared to LD 4.6 billion approved in thebudget

The 2009 budget envisages a small nominal decline in public expenditure, putting anend to three years of large fiscal expansion. The small decline in overall expenditurereflects a 20 percent reduction in capital spending and a 25 percent increase incurrent outlays, which includes a 16 percent projected increase in the wage bill. Thelatter is due in large part to the return to the civil service payroll of a portion of thepublic employees that were previously transferred to a central labor office forretrenchment to the private sector. The overall fiscal position is expected to registera surplus of about 10 percent of GDP in 2009 despite the projected decline in oilrevenue by almost 40 percent.

The external current account surplus remained high at about 41 percent of GDP in2008. The rapid increase in imports (about 30 percent) was more than offset by asharp rise in oil receipts, resulting in a further build up of the net foreign assets ofthe Central Bank of Libya (CBL) and the Libyan Investment Authority (LIA) to aboutUS$136 billion.

Broad money growth accelerated to about 48 percent in 2008, reflecting thesubstantial increase in net foreign assets and the rapid increase in publicexpenditure, including on-lending by the Specialized Credit Institutions(SCIs). Thelatter accounted for almost 50 percent of outstanding credit. Bank credit to theeconomy increased by about 12.5 percent. Bank deposits rose by about 70 percent.They mostly constitute of demand deposits of public entities.

Bank restructuring and privatization are making progress. An asset managementcompany to deal with bad loans has been established, capital requirements arebeing raised, and smaller banks are being encouraged to seek well-establishedforeign strategic partners. The CBL licensed two new banks with foreignparticipation. In addition, the authorities privatized 15 percent of one of theremaining two large public banks by issuing an IPO.

Progress has been made in customs and tax administration. Large taxpayers officeshave been established and customs inspection is being automated. However, theservice fee on imports has recently been increased from 4 to 10 percent, and otherear-marked fees remain in place.

Executive Board Assessment

Executive Directors welcomed Libyas solid macroeconomic performance and the

important progress in implementing structural reforms, particularly in the financialsector. The impact of the global crisis on Libya has been limited to declines in oil

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continues to be favorable. Directors underscored the importance of further efforts toaddress excess liquidity, improve public financial management, and advancestructural reforms that would support the authorities aim to diversify the economyaway from oil and promote the role of the private sector.

Directors noted that the authorities overall fiscal stance strikes an appropriatebalance between short- and long-term considerations, and that the small decline inpublic expenditure planned for 2009 is a clear break with the large increases inrecent years. They encouraged stronger efforts to improve the quality andcomposition of expenditure, and limit the growth of current expenditure. Directorswelcomed the authorities decision to postpone the implementation of the WealthDistribution Program.

Directors considered it crucial to advance the efforts to strengthen public financialmanagement. The recent merging of the ministries of finance and planning is an

important step in this direction. Directors endorsed the governments intention toestablish a Treasury Single Account to enhance cash management and expenditurecontrol and to improve coordination of fiscal and monetary policies. Going forward,modernizing the budgets legal and administrative framework to reduce extra-budgetary funds would enhance budget transparency and effectiveness. Directorsencouraged the authorities to continue to enhance the legal and operationalframework of the Libyan Investment Authority. To best serve its core objectives, thefocus should be on conservative investments abroad.

Directors welcomed the intention of the Central Bank of Libya (CBL) to extend thematurities range of its certificates of deposit and develop an auction mechanism forthem. The ongoing efforts to modernize the CBL and enhance the payments systemwill establish the infrastructure to support the design and implementation ofmonetary policy. To address large excess liquidity in the banking system, priorityshould be accorded to establishing quickly the Treasury Single Account and reducingon-lending by specialized credit institutions.

Directors commended the advances made in bank privatization and restructuring. Inparticular, they welcomed the recent establishment of an asset managementcompany to deal with bad loans, and the partial privatization of the largest publicbank. Directors welcomed the ongoing efforts to further enhance supervisoryreporting, on-site supervision techniques, and regulations and standards.

Directors agreed that the dinars peg to the Special Drawing Right (SDR) continuesto serve Libya well. They noted that, while the dinar appears to be moderatelyovervalued, this is likely to be partly transitory in view of the projected decline in theexternal current account surplus.

Directors recognized the considerable progress achieved in liberalizing and openingthe economy, supported by Fund technical assistance. They encouraged continuedefforts to enhance the regulatory framework in order to further improve the business

climate and promote private sector activity. The welcome strengthening in customsand tax administration needs to be accompanied by low corporate tax and customsrates, with few brackets and limited exemptions.

Directors encouraged the authorities to continue to improve economic and financialstatistics.

200520062007 2008

Prel.

9.95.96.0

3.8

13.67.99.9

8.0

7.24.32.8

0.0

2.91.46.2

10.4

62.962.460.8

64.0

Libya: Basic Economic and Financial Indicators, 2005-08(Quota = SDR 1,123.7 million)

Population (million): 6.04 million (2007)Per capita GDP: US$14,479 (2008)

(Annual percent changes)

National income and prices

Real GDP

Nonhydrocarbons

Hydrocarbon

CPI inflation

(In percent of GDP)

Central government finance

Revenue

7/29/2019 200909 Public Information Notice- IMF Executive Board Concludes 2009 Article IV Consultation with the Socialist Pe

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58.557.554.5

57.4

4.54.96.3

6.6

33.531.035.3

39.3

13.913.414.1

15.4

19.717.621.1

23.9

29.431.425.5

24.6

-29.1-26.2-29.0

-32.7

10.616.040.1

47.8

4.54.54.5

4.5

7.711.614.5

12.5

31.439.247.0

62.0

30.538.245.8

60.7

11.213.117.7

21.7

17.125.229.1

36.6

38.944.640.7

40.7

54.374.898.3

136.1

38.452.748.5

49.4

28.931.022.9

22.0

-1.8-0.6-0.3

6.0

of which : Hydrocarbons

Nonhydrocarbon

Expenditure and net lending

Current

Capital

Overall fiscal balance

Nonhydrocarbon balance (deficit -)

(Annual percent changes, unless otherwise specified)

Monetary indicators

Broad money

Deposit rates (1 year deposits, in percent)

Claims on the economy

(In billions of dollars, unless otherwise specified)

External sector

Exports of goods

of which: Hydrocarbons

Imports of goods

Current accounts balance

In percent of GDP

Total foreign assets (NFA + LIA investments)

of which: Net international reserves

(In months of next years imports)

Real effective exchange rate (percent change)

Sources: Libyan authorities; and Fund staff estimates.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A

staff team visits the country, collects economic and financial information, and discusses with officials the country's economicdevelopments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the

Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of

Executive Directors, and this summary is transmitted to the country's authorities. This PIN summarizes the views of theExecutive Board as expressed during the August 5, 2009 Executive Board discussion based on the staff report.

IMF EXTERNAL RELATIONS DEPARTMENT

Public Affairs Media Relations

E-mail: publicaffairs@imf.org E-mail: media@imf.org

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