By Peter OBIORA InvestAdvocate

Lagos (INVESTADVOCATE)-The International Monetary Fund (IMF) Friday said Libya’s economic growth in year 2012 exceeded 100 percent (100%), reflecting a strong recovery from its collapse during the revolution.

This is contained in a Press Release from the IMF and made available to InvestAdvocate.

The IMF’s mission led by Ralph Chami visited Libya to conduct discussions with its authorities in the context of the annual Article IV consultations.

Chami said the discussions focused on measures to improve the country’s business environment to foster inclusive growth based on diversification of the economy underpinned by private sector–led growth, develop the financial sector, and control government spending including through subsidy reform.

According to Chami, Latest indicators are pointing to a restoration of hydrocarbon output later this year and a full recovery of growth in the nonhydrocarbon sector in 2014.

He said inflation fell to 6% in 2012, and a further decline is expected this year. “With a considerable pickup in reconstruction expenditure and private demand, nonhydrocarbon growth is expected to average 15% during 2013” Chami said.

According him, the financial situation in Libya began to normalise after most of the UN sanctions that had frozen the country’s foreign assets were lifted on December 16, 2011, allowing its Central Bank to provide foreign exchange liquidity to banks and help normalise commercial banking operations.

From the missions report, in 2012, broad money grew by 11.5% with a shift from currency into deposits reflecting increased confidence in the banking system.

Chami affirmed that the Libya’s banking sector appears well capitalised, but it may be vulnerable to asset quality deterioration. “More recently, the authorities have introduced legislation that prohibits the payment of interest, which unless handled carefully, could pose risks to the financial sector and undermine efforts to diversify the economy” he said.

He affirmed that the short-term challenges are to manage the political transition of Libya, normalise the security situation, address severe institutional capacity constraints to ensure the timely compilation and dissemination of key statistics, and exercise budget discipline while maintaining macroeconomic stability.

“Over the medium term, the authorities should address a range of issues including institutional capacity building, improving the quality of education, rebuilding infrastructure, putting in place an efficient social safety net, developing the financial market, improving the management of the country’s resource wealth and associated financial flows with an efficient and transparent system, and reducing hydrocarbon dependency through private sector–led growth” Chami said.

According to the IMF, a significant reduction in unemployment, which is largely structural, will require major changes in economic policies and institutions, while sustainable, employment-generating growth will require a business environment that is conducive to private-sector development with a focus on diversification of the economy to create employment opportunities in the private sector.

The Mission said Libya’s public finances and external current account remain vulnerable to a sustained decline in oil prices. Also, increases in recurrent expenditures pose risks to fiscal sustainability and is causing appreciation of the real exchange rate. In the medium term, necessary reconstruction and development spending will push the budget into deficit in the absence of a curb on current spending.

“With fiscal sustainability in mind, the government is seeking to contain current expenditures in the 2013 budget, but further steps are needed to limit current expenditure, in particular to contain increases in salaries and the number of public employees, as well as streamlining generalised subsidies. Plans are under elaboration for a subsidy reform strategy. The implementation of a national system for the identification of active civil servants should help to reduce the number of “ghost” workers in the civil service” the IMF affirmed.

The IMF noted that the pegged exchange rate regime of Libya will remain the policy anchor, affirming that ample foreign exchange reserves that preserve confidence in the currency and fiscal and monetary policies need to be supportive of the peg.

According to the IMF, a credible fiscal policy anchor would delink the Libyan economy from world oil price fluctuations, improve the management of resource wealth, and safeguard macroeconomic stability. “The adoption of a well-designed fiscal policy rule would help keep in check pressures on government spending and improve the management of oil price cycles” the IMF mission said.

The IMF said efforts are needed to develop a vibrant financial sector that caters to the needs of the economy. “Structural reforms are required for the development of a growth-enhancing financial system, particularly reforms to the operation of state owned institutions and a winding down of non-commercial activities. The streamlining of regulation while strengthening the supervisory framework will be important to promote financial intermediation” the IMF Report affirmed.

According to Wikipedia, the Economy of Libya depends primarily upon revenues from the Petroleum Sector, which contributes practically all export earnings and over half of GDP. These oil revenues and a small population have given Libya the highest nominal per-capital GDP in Africa. Since 2000, Libya has recorded favourable growth rates with an estimated 10.6% growth of GDP in 2010.