The International Monetary Fund (IMF) expects Libya’s hydrocarbon production to grow by around 15% in 2023 following an increase in oil production from 1Million barrels per day in 2022 to around 1.2Million barrels per day in 2023 and increase gradually thereafter.
“Libya’s economic fortunes will hinge on oil and gas production for the foreseeable future”, the fund says in a report by the Executive Board of Fund, which concluded a consultation with Libyan officials on Wednesday, May 24, 2023.
Looking ahead, assuming fiscal spending remains contained, the baseline projection is for fiscal and external surpluses to gradually decline over coming years. The key risks to the outlook are lower oil prices due to lower-than-expected global growth, and renewed conflict and/or social unrest that leads to disruptions in oil production.
A rebound in oil prices and the resumption of oil production after the deleterious intervention of COVID 19 has resulted in budget and current account surpluses in both 2021 and 2022. Gross Domestic Product—which closely tracks oil production—remained volatile. Inflation has been relatively subdued despite a sizable depreciation of the dinar in 2021 and rising global commodity prices, rising from 2.9 percent in 2021 to 4.5% in 2022.
Libya is heavily reliant on oil and gas production, and therefore subject to considerable volatility and downside risks from the global green transition. IMF Directors noted that the key medium-term challenge is to diversify away from hydrocarbons and to promote stronger and more inclusive private sector-led growth. They encouraged the authorities to enhance transparency, strengthen institutions and address corruption and governance concerns to support these efforts. Directors highlighted the importance of enhancing data provision and statistical capacity.
IMF calls for an agreed and transparent budget to support policy credibility and macroeconomic stability and help preserve intergenerational prosperity. They noted the importance of improving public financial management, avoiding procyclical spending, diversifying the tax base, gradually reforming untargeted energy subsidies to make room for additional social spending and infrastructure development, strengthening management of state-owned enterprises, and building a medium-term framework.
The Fund observes that reunification of the central bank is crucial for strengthening monetary policy, supporting financial stability, and fostering private sector development. It notes that frequent changes to the currency peg should be avoided to maintain confidence in the exchange rate as the nominal anchor. Maintaining the peg would also allow the central bank to better protect foreign exchange reserves amid elevated political and security risks.