IMF Says Oil, Gas Output to Remain Fundamental Part of Libya Economy

Oil and gas production will remain a fundamental component of Libya’s economy in the “foreseeable future”, an International Monetary Fund (IMF) mission said recently, foreseeing an increase of about 15 percent in hydrocarbon output this year but warning of a risk from the global race to reduce carbon emissions.

“Hydrocarbon production is projected to grow by around 15 percent in 2023 following an increase in oil production from 1 million barrels per day in 2022 to around 1.2 million barrels per day in 2023, and increase gradually thereafter”, IMF said in a statement.

“Looking ahead, assuming fiscal spending remains contained, the baseline projection is for gradually declining fiscal and external surpluses 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”.

The Washington-based lender also warned about continued economic dependence on oil and called for a “clear economic vision” for the North African nation.

Oil comprised $22.19 billion (LYD 105.5 billion) or around 78.5 percent of Libya’s total public revenue of $28.27 billion (LYD 134.4 billion) last year, according to the Central Bank of Libya. The figure for oil excluded $2.86 billion (LYD 13.6 billion) in oil royalties.

Tax revenue contributed $294.44 million (LYD 1.4 billion). Excluding earnings from Financial Services Controllers and taxes, telecom was the second-biggest sector in terms of contribution to the government revenue in 2022 with a $111.26-million (LYD 529 million) share, based on the official data.

Of the nation’s $22.21-billion (LYD 105.62 billion) total public revenue in 2021, $21.74 billion (LYD 103.3689 billion) came from oil, based on national bank data.

“The speed at which the international community is mobilizing to reduce carbon emissions and recent leaps in clean energy technology pose a risk of disorderly adjustment for economies dependent on oil”, the statement said. “Libya is at risk of falling behind these important global trends”.

“Looking ahead, Libya faces the daunting challenge of reducing its reliance on hydrocarbons while fostering stronger and more inclusive private sector-led growth. Structural reform efforts should focus on strengthening institutions and developing a more purposeful and transparent economic strategy for the future. This would be an opportunity to rally the population behind a clear plan to optimize the use of oil revenue to achieve economic diversification and improve living standards and inclusivity”.

On a positive note, the IMF mission observed that despite “exceptional swings in oil production and revenues since 2011”, central bank measures such as adjusting downward the value of the dinar “helped maintain a large stock of international reserves”.

Reengagement with IMF

Missions are undertaken as part of regular (usually annual) consultations under Article IV of the IMF’s Articles of Agreement, in the context of a request to use IMF resources (borrow from the IMF), as part of discussions of staff monitored programs, or as part of other staff monitoring of economic developments, the IMF notes on its site. The IMF mission held discussions for the 2023 Article IV consultation for Libya in Tunis, Tunisia, during March 11-17.

The IMF said in its recent statement that it welcomed the opportunity to reengage with Libya via an Article IV consultation “after a decade-long hiatus”. 

“The fragmentation of the country that followed the fall of the Ghaddafi regime in 2011 effectively suspended the production of key economic indicators and complicated policymaking, resulting in difficulties in conducting Article IV consultations”, the statement added.

“The authorities have recently made commendable progress towards improving data collection, sharing and transparency. Together with the flexibility afforded by the IMF’s new Fragile and Conflict-Affected States (FCS) strategy, this has paved the way for a resumption of Article IV consultations”.

To contact the author, email jov.onsat@gmail.com

Photo Credit: iStock.com/batuhanozdel