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Libya - Diversifying the economy & promoting the private sector

Global Arab Network - - Reda Darwish

Wednesday, 28 April 2010 16:16

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Libya has been implementing a comprehensive reform program driven by the Government’s decision to move away from an ownership role in the economy to that of a prudent regulator. The entire economy is undergoing a restructuring, underpinned by widespread public support. The reform program—supported by technical assistance from international institutions and private consulting firms—aims at diversifying the economy away from oil and promoting the role of the private sector. Reflecting the shift in economic policies, a private investment boom is underway and the private sector’s share in the economy is growing at a rapid pace. Libya’s integration into the global economy took a further step forward in 2009 when both Standard & Poor’s and Fitch gave it an investment grade rating A-/stable/A-2 and BBB+/stable, respectively.

Prudent macro-economic and foreign exchange reserve management has shielded the economy from the recent global financial market turmoil. Since 2005, non-oil real economic growth has been strong and both the fiscal and current accounts balances have registered large surpluses. Non-oil growth continues to be broad based, benefiting from heightened foreign investor interest in the banking, services, infrastructure, and tourism sectors. Inflation remains under control and net external assets of Libya reached $138 billion at end-2009.

The last three years, banking sector have witnessed a major transformation of Libya’s banking infrastructure with privatizations, mergers, initial public offerings and opening of foreign banks. Out of the 16 commercial banks currently licensed in the country, 6 have strategic foreign partners. The entire banking system will be in private hands by 2011. A new central bank of Libya (CBL) structure has been finalized, it will strengthen the monetary policy framework and banking supervision; and establish a functional-based organizational structure. The many complex aspects of a national payments system are being put in place and a credit bureau started operations in April 2009.

Economic growth is expected to remain very strong over the medium-term driven by public, and private domestic and foreign investment. Both the budget and current account balances are expected to remain in surplus. All sectors of the economy are experiencing strong growth and most investments that are taking place in Libya have a public/private partnership. Many of the strategic private partners are international companies. All investments are made with a commercial objective and upon completion private companies will manage all projects. Demand for banking services is expected to increase significantly.

The favorable developments in Libya’s oil sector have contributed to a significant improvement in the external current account surplus which averaged about 40 percent of GDP annually since 2005. Hydrocarbon export earnings reached about $62 billion in 2008. Reflecting higher capital expenditures, imports have been increasing. Overall, total external assets of Libya surpassed $135 billion at end-2009.

The Libyan Stock Market enjoyed buoyant activity in 2009. The market started with five listed stocks that has more than doubled. It currently has a market capitalization that exceeds the LD1bn. There are 40 companies in the pipeline for public offerings over 2010-11. A new stock exchange law will facilitate registration, accelerate dispute resolution and probably increase foreign participation.

Considerable progress has been made in liberalizing and opening the economy, including implementing a comprehensive privatization program of state enterprises, simplifying procedures for business application, removing customs duties, liberalizing most prices, removing restrictions on external trade, and allowing foreign investment in key sectors. The reform process will be broadened and accelerated in the period ahead. The government is committed to these reforms.

Global Arab Network

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