- Since the lifting in 2003-04 of international sanctions, Libya has experienced a strong economic growth, mostly driven by high oil prices and investments in that run-down sector. In 2005, however, economic reforms and trade liberalisation has finally lifted Libya's under-developed non-oil sector to become the motor of economic growth. This comes despite the still persistent limits to foreign investments.
The International Monetary Fund (IMF) yesterday published its conclusions from its annual economic consultations with the Tripoli government - the third ever IMF report on Libya's economic situation. The report is an account of fast and deep-ploughing macroeconomic reforms towards a market economy since 2003, followed by very positive economic results.
Libya's real GDP started growing rapidly as soon as sanctions against the Ghaddafi regime were lifted, new statistics revealed by the IMF show. In particular 2003 saw a tremendous GDP growth with 9.1 percent, almost exclusively driven by the oil sector. This coincided with the year that Europeans were let to invest in Libya's oil sector, which had suffered from the ten-year sanctions regime.
In 2004, Libya's GDP growth slowed somewhat but was still "satisfactory", according to the IMF assessment. Growth was mainly owed to higher oil prices - increasing by 31 percent - and an increased oil output, by 5.6 percent. IMF statistics show that real GDP grew 4½ percent in 2004, while consumer prices declined by 2.2 percent, driven by an ease on import restrictions and tariffs.
While the non-oil sector had only grown by 2.2 percent in 2003, it almost caught up with the oil sector in 2004, growing by 4.1 percent. The 2004 growth in the non-oil sector however mainly was contributed to the implementation of a number of public projects, according to the IMF.
Only last year, preliminary data from Libyan authorities showed, the non-oil sector grew into the motor of the national growth. With an estimated total real GDP growth of 3.5 percent in 2005, the non-oil sector had contributed to most of the growth. The non-oil economy generated a growth rate of 4.6 percent while activity in the oil sector grew only 1½ percent, "due to output capacity constraints," according to the IMF.
Also in 2005, the pick-up in activity in Libya's non-oil sector was essentially the result of the increase in government spending. The main sectors that registered strong growth include trade, hotels, and transportation - up 7 percent - and construction and services, growing by 5 percent. Gains in agriculture had remained modest at 2.5 percent, but the manufacturing sector registered its first positive growth in five years, going up by 1.8 percent.
The growth in Libya's non-oil sector comes despite the many structural limitations to investments. Libyan authorities still operate with a US$ 50 million floor on foreign investment in the country, which according to the IMF "de facto disqualifies most foreign investments in the non-oil sector."
As a relict from the tight state control on the economy and scepticism towards foreign economic activities in Libya, authorities still operate with a list of sub-sectors where foreign investors are allowed to engage. While this list has been strongly amplified during the last few years, the IMF yesterday urged authorities to "replace the current positive list with a clear and streamlined negative list" - meaning a list that defines sectors where foreign investments are barred.
The IMF report further praises Libyan authorities for its rapid speed of economic policy reforms and trade liberalisation, despite Tripoli's "severe human resource constraints and weak institutions." Reforms during the last two years in particular had streamlined import taxes, cut trade barriers, facilitated foreign investments, liberalised the financial market and initiated privatisation programmes.
Despite these moves towards an open market economy, the Libyan economy still was largely state controlled and poorly diversified, the IMF report noted. Three quarters of employment in the country of 5.67 million inhabitants is still in the public sector and private investment is minuscule, reaching only 2 percent of GDP, according to newest statistics. The oil sector remains totally dominant.
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