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Home » Libya » Joint Communique on Libya

23/07/2013

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With an estimated 95.5% real GDP growth, Libya’s economy experienced a major rebound in 2012. This is not due, however, to an overall rise in productive economic activity but is mainly a result of the resumption of oil production as well as of the low base from which the economy started off in 2012.

African Economic Outlook said that by the last quarter of 2012, Libya’s oil production had already recovered to nearly 1.5 million BPD, nearly reaching its pre-conflict levels of 1.6 million. The increase in demand for construction and infrastructural activity also played an important role in the massive increase in the levels of real GDP.

This is however likely to be a short-term contributing factor associated with post-war reconstruction. In 2012, the oil sector constituted the largest sector of the economy, contributing to nearly 78% of the GDP.

The report goes on to say that Libya’s growth in 2012 was not employment-intensive, as it was mainly concentrated in the capital-intensive energy sector, hence failing to address the high levels of unemployment and the further expansion of the informal sector.

The negative impact on the country’s poverty levels was mitigated by the government’s generous social-safety-net programmes, which require efficiency reforms.

In February 2012, Libya’s interim government approved a budget of LYD 68 billion for 2012 (equivalent to 63% of the 2012 GDP), which included funds for reconstruction and development. The oil price at which the budget was balanced increased from USD 58 per barrel in 2010 to USD 91 per barrel in 2012.

Continued dependence on volatile international oil prices could threaten the stability of public expenditure and the government budget in the coming years, but regardless of short-term supply and demand imbalances, hydrocarbon revenues continue to provide the Libyan authorities with the funds required for reconstruction and resumption of economic activity, African Economic Outlook says.

Given the country’s estimated current-account surplus, which stands at 27.2% of GDP in 2012, there is limited risk of Libya’s encountering an external-account deficit in the short term should hydrocarbon prices plummet.

Wartime damages to key ports have lowered Libya’s import-offloading capacity, creating supply bottlenecks, which could contribute to generating inflationary pressures given the country’s heavy reliance on food imports.

Following from a temporary decline in domestic demand caused by the flight of Libyan nationals and foreign workers in the wake of the civil war, the gradual move towards political stability and the resumption of reconstruction efforts in the non-oil sector is attracting the return of these groups.

The subsequent rise in demand combined with an increase in consumer confidence may also lead to higher risks of demand-driven inflation.

Nonetheless, inflation is estimated to have declined to 6.9% in 2012 (based on the latest data from November 2012), and is expected to stabilise in 2014 and ease back towards its long-term trend of just below 4%.

As part of the reconstruction efforts, attempts to diversify Libya’s economy have focused on agriculture, tourism, fisheries, mining and natural gas. The agricultural sector accounts for less than 2% of GDP but is becoming a top government priority.

The completion of the USD 30 billion Great Man-Made (GMM) River project reduced the country’s water shortage by drawing water from aquifers beneath the Sahara and conveying it along a network of huge underground pipes to the Mediterranean coast.

However, the NATO attack on the GMM pipe factory in the city of Brega in July 2011, based on claims that it was used as a military storage facility, caused major damages to the plant and led to dramatic reductions in regional water supplies for consumption and irrigation.

In addition, climate conditions and poor soil still severely limit agricultural output and mean that domestic food production meets only 25% of the demand.

Given Libya’s almost total dependence on wheat imports and its large consumption per capita of nearly 190 kgs, and in an effort to lessen the inflationary impact of rising world food prices, in early 2011 the government increased food subsidies and removed all customs duties and taxes on imported foodstuffs.

In tourism, the government is now extending many incentives designed to boost the sector, with state-owned hotels being offered to private and foreign operators.

In 2012, Tameer Holding (a United Arab Emirates property developer) announced it had signed a deal with the Libyan authorities to develop a USD 20 billion residential and tourist project near Tripoli, which is the largest investment to date in North Africa by a Gulf investor.

The African Economic Outlook report concludes that the future trajectory of the Libyan economy will be determined to a large extent by: i) the economic strategy set out by the new government; ii) the security situation on the ground; iii)the intensity and management of regional tensions over the control and distribution of hydrocarbon resources; and iv) the international oil demand.

Source: Tripoli Post

Categories: Libya, News, Press

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