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Libya’s Public Expenditure Management Needs Boost to Ensure Effective Use of Funds

Date: October 20, 2022

Tripoli

A recent report by the International Monetary Fund (IMF) has highlighted the need for Libya to improve its public expenditure management system to ensure effective use of funds. The report recommends reducing allocations to Special Credit Institutions (SCIs), enhancing consistency in budget classification, and strengthening monitoring and control mechanisms.

Financial Sector Progress

The IMF’s mission to Libya noted that the country’s financial sector has made significant progress, with the Central Bank of Libya (CBL) introducing commercial bank deposits and implementing a comprehensive strategic plan for 2009-2011. However, challenges remain, particularly in managing foreign assets, which pose a key risk to the country’s economic stability.

Sovereign Asset Management Strategy

The report emphasizes the need for Libya to develop a comprehensive sovereign asset management strategy, taking into account macroeconomic vulnerabilities and petroleum wealth still underground. The presence of different government funds has led to concerns about reputational risks, highlighting the importance of clear roles and strategic asset allocation.

Banking System Reforms

In addition, the IMF mission welcomed progress in modernizing the banking system, including the introduction of a new 28-day commercial bank deposit maturity and an overnight facility. However, it encouraged further reforms, such as introducing an auction mechanism for commercial bank deposits, increasing maturity ranges, and strengthening coordination with fiscal policy to limit liquidity injection.

Financial Market Development

The report also highlights the need for Libya to deepen its financial market, increase foreign participation in the banking sector, and improve inter-agency coordination. The success of recent law reforms aimed at improving the business environment and attracting foreign direct investment will depend on sustained efforts to build consensus and credibility.

Customs Reform

In terms of customs reform, the mission welcomed ongoing tariff harmonization, streamlining of clearance procedures, and modernizing of customs administration, which have led to efficiency gains and improved revenue collection. However, it encouraged continued efforts aimed at simplifying tariffs, speeding trade facilitation, and expanding electronic information systems.

Data Weaknesses

The report also highlighted data weaknesses as a major challenge for effective policymaking in Libya. Significant deficiencies remain in real sector and government finance statistics, while national account statistics suffer from methodological problems and do not fully capture the activity of the non-hydrocarbon sector.

Conclusion

In conclusion, the IMF’s mission to Libya emphasizes the need for the country to improve its public expenditure management system to ensure effective use of funds. The report recommends reducing allocations to SCIs, enhancing consistency in budget classification, and strengthening monitoring and control mechanisms to address challenges in managing foreign assets and ensuring sustainable economic growth.