afrol News, 22 March - Libya's oil-driven economy needs to reform and diversify, the International Monetary Fund (IMF) concludes in its annual economic review. Libya's economy, which remains largely state controlled and heavily dependent on the oil sector, however grew solidly in 2003–04, "reflecting favourable developments in world oil markets," the IMF says.

According to statistics revealed in the latest edition of 'IMF Survey', the Fund's internal journal, economic growth has indeed been strong since Libya started opening up to the world. While growth was between 1 and 4.5 percent from 2000 to 2002, it has picked up during the last two years. Real GDP growth in 2003 reached 9.1 percent, while preliminary calculations indicate a growth of 4.4 percent last year.

Despite these successes, however, the IMF in its annual economic review holds that the Libyan government needs to reform its largely state controlled economy. Libya is heavily dependent on the oil sector and needs to diversify its economy as soon as possible, the Fund holds.

Most indicators however remained good. The fiscal and external current account balances registered large surpluses, and international reserves rose sharply. Since the lifting of international sanctions, the pace of reforms, aimed at boosting private sector activity, had "picked up somewhat. However, reforms continue to be implemented in an ad hoc and non-transparent manner," the IMF says.

The IMF Executive Board had welcomed the Libyan authorities' increased reform efforts but noted that "much needs to be done to transform the country into a market economy." Libya's large surpluses were nevertheless providing a good opportunity to speed up economic reforms, and the early creation of an inter-ministerial economic team should help plan, coordinate and sequence reforms.

In the short run, the Fund says, "policies should focus on developing market-based monetary instruments, restructuring the banking system, liberalising prices, strengthening budgetary management and procedures, and reforming the subsidy system." The IMF Board had encouraged Libyan authorities to reassess their one-sector-at-a-time approach to reform and to start now seeking greater economic diversification.

A prudent medium-term fiscal framework "would help reduce the large non-oil deficit by strengthening the non-oil tax base, including reducing tax exemptions and streamlining spending," the IMF said. "The authorities should also move toward greater budget transparency and consolidate in the budget all extrabudgetary operations."

The reform work in Tripoli had however started already. For example, a new banking legislation has been passed that grants the central bank greater independence. Also other economic and structural reforms were starting to be implemented.

Given Libya's "severe human resource constraints and weak institutions," the IMF had supported the Tripoli authorities' request for technical assistance in support of economic and financial reforms, "taking into consideration the country's absorptive capacity," 'IMF Survey' reports.

By staff writer

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