TRIPOLI – Libya’s economy is likely to rebound sharply this year from a deep contraction in 2011 as the country rebuilds from civil war and oil production recovers to levels last seen during Muammar Gaddafi’s rule, the International Monetary Fund (IMF) said in its latest report about the country’s economy.
The IMF said the fund forecast growth will rocket 116.6 percent in 2012 following a contraction of 60 percent last year.
The pace of expansion is likely to slow to 16.5 percent and 13.2 percent in 2014 as the effects of the war on the economy wane, the IMF added.
Such impressive rebounds in growth are not unusual in countries emerging from conflict when the economy is boosted by rebuilding projects.
While Libya’s government can afford the current high rates of spending in the short term, the IMF estimated that it is not sustainable over the longer term and will push the budget into deficit from 2015.
"A more thorough analysis of sustainability based on the present value of financial assets and future oil extraction indicates that from 2012, public spending will exceed the sustainable, long-term level by over 10 percent of GDP," the fund added.
The IMF also warned that continued political uncertainty, insecurity and the possibility of a drop in global oil prices were all risks to Libya’s economic outlook.
Last week around half of Libya’s oil exporting capacity was shut down and production cut by about 300,000 barrels per day (bpd) from about 1.3 million bpd after protests by groups demanding autonomy for eastern Libya, the source of most of the country’s oil.
The oil price at which Libya’s budget is balanced is about $91 per barrel in 2012, an increase from $58 a barrel in 2010, and is set to exceed $100 a barrel from 2013, the IMF said.
A deeper crisis in the euro zone and sharper slowdown in the world economy could push global oil prices lower, which would be pose challenges for Libya’s oil dependent economy, the IMF said.
As Libya’s imports return to normal, consumer price inflation should be contained at 10 percent despite pressure on prices from supply bottlenecks in housing and transportation, it said.
IMF added, however, that a drop in the country’s high level of unemployment is not likely without reforms.
Rising oil output amid high crude prices is helping the Libyan economy rebound strongly, but higher wages and subsidies are eroding budget buffers and undermining prospects for the government’s future finances.
Libya must address issues including capacity-building and improving the quality of education, rebuilding infrastructure, financial market development, reducing hydrocarbon dependence, and putting in place an efficient social safety net.
It will also need to establish transparency and accountability to help promote private sector-led growth, job creation, and expansion that benefits the whole society, the IMF said. – SG