In its conclusions of the mission it made to Libya during this year, the International Monetary Fund (IMF) said that Libya has achieved better macroeconomic performance in 2007 and warned that uncontrolled inflation would hart economic growth.
The conclusion which was published on 12 November said the overall " Libya's macroeconomic performance strengthened further in 2007, notwithstanding an acceleration in inflation. Real GDP is projected to increase by 6.8 percent (up from 5.2 percent in 2006) on account of rapid growth in non-oil activity (7.5 percent) and robust growth in oil production (4.7 percent). Annual CPI inflation accelerated substantially from low levels in the first half of the year to about 11 percent in the third quarter due to the large increase in public expenditure (particularly wages), excess liquidity, and the price of imports, notably food items."
The statement also said "despite higher oil revenues, the fiscal surplus in 2007 is expected to be smaller than in 2006. The fiscal surplus for 2007 is projected at about 35 percent of GDP, compared to 39 percent of GDP in 2006. The narrowing of the surplus reflects the rise in expenditure, although the spending increase was less than what was in the budget."
Libya still faces key challenges in the medium term, said the conclusion. "The current favorable global environment and Libya's strong financial position provide an opportunity to take additional decisive steps to address these challenges. Laying the basis for a sustainable noninflationary growth and creating sufficient job opportunities for a fast-growing labor force hinge on a number of things:
(I) containing the increase in spending and enhancing its quality; (ii) upgrading the infrastructure;
(iii) strengthening the management of the oil savings to safeguard inter-generational equity;
(iv) developing the financial sector; and (v) improving the domestic business climate and diversifying the productive base in order to reduce dependence on oil.
The other positive performances include the external current account surplus is also projected to narrow in 2007. "It is expected to fall to (a still very large) 40 percent of GDP, compared to almost 52 percent of GDP in 2006, due to a surge in imports. Gross official reserves increased by $20 billion in 2006 and are projected to increase by another $24 billion in 2007, reaching about $83 billion by the end of the year."
In terms of broad money growth accelerated in 2007 (projected at 31 percent by year-end, up from 20 percent in 2006). "This reflects a substantial increase in the net foreign assets of the Central Bank of Libya (CBL), public spending, and lending by specialized credit institutions. The real effective exchange rate depreciated by about 1 percent in the first half of 2007 due to the appreciation of the Euro2 against the SDR, to which the dinar is pegged. The dinar appreciated by 4 percent against the U.S. dollar during this period."
The IMF mission maintains that Libya's economy is expected to benefit in 2008 and beyond from continued high oil prices, further growth in oil output, and increased interest of foreign investors.
"Oil production is projected to almost double (to about 3 million barrels per day) by 2012 on account of the utilization of advanced exploration and extraction techniques by international oil companies.
Large investment projects announced for the various sectors (from hydrocarbon to tourism) already exceed $35 billion in total value. Turning these positive prospects into sustainable job-creating growth while maintaining macroeconomic stability hinges on containing expenditure growth, advancing structural reforms, and solid evaluation and appropriate sequencing of the planned investment projects."
The report states that Libyan authorities are encouraged to improve economic and financial statistics, in order to facilitate the monitoring of developments and policy formulation. In particular, priority should be accorded to GDP, employment, and balance of payment statistics.
The IMF commended Libya's generous support of low income countries, particularly in Africa, through financial assistance and outward foreign investment is commendable.
It said "the mission encourages the authorities to provide full debt relief to heavily indebted poor countries in line with the HIPC Initiative."
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