Financial Crime World

Libya’s Public Expenditure Management in Need of Overhaul

The International Monetary Fund (IMF) has called for a major overhaul of Libya’s public expenditure management system to ensure transparency and accountability in the use of public funds.

Reducing Allocations to Specialized Credit Institutions

In its latest report on Libya, the IMF highlighted the need to reduce allocations to Specialized Credit Institutions (SCIs), which would facilitate better expenditure monitoring and control. This is essential for ensuring that public funds are used efficiently and effectively.

Enhancing Budget Classification Consistency

The fund also recommended further enhancing consistency of budget classification to facilitate budget analysis. This will enable policymakers to make more informed decisions about how to allocate public resources.

Challenges Ahead

While progress has been made in modernizing the banking system and deepening the financial market, there are still significant challenges ahead. The IMF urged the authorities to scale back the operations of SCIs and develop a plan to reform them.

Effective Management of Foreign Assets

The fund also emphasized the need for effective management of Libya’s large and rapidly growing portfolio of foreign assets. This includes:

  • Finalizing and implementing the reserve management policy and investment guidelines
  • Establishing systems for measuring and managing risks and returns
  • Developing operational benchmarks
  • Enhancing the reporting framework

Sovereign Asset Management Strategy

In addition, the IMF encouraged the authorities to establish a sovereign asset management strategy that takes into account the overall sovereign balance sheet, including macroeconomic vulnerabilities and petroleum wealth still underground.

Credit Culture Improvement

The report also highlighted the need for improved credit culture in Libya through:

  • Specialized training
  • Targeted awareness campaigns
  • Learning from cross-country experiences

This would help spur financial intermediation and deepen the financial market.

Exchange Rate Management

In terms of exchange rate management, the IMF recommended maintaining the current dinar/SDR peg, which provides a monetary anchor while allowing some flexibility in its exchange rate vis-à–vis individual major currencies.

Promoting Growth of Non-Hydrocarbon Sector

The fund also urged the authorities to promote growth of the non-hydrocarbon sector and spur diversification of the economy through:

  • Establishing permanent bodies to monitor, assess, and oversee the implementation of law reforms
  • Setting up an open consultation process with the legal and business communities
  • Improving inter-agency coordination

Improved Economic and Financial Statistics

Finally, the IMF called for sustained efforts to improve economic and financial statistics, including using the General Data Dissemination (GDDS) framework. This would help address significant data weaknesses that continue to hamper effective policymaking in Libya.

By implementing these recommendations, Libya can strengthen its public expenditure management system and promote sustainable economic growth and development.