Libya’s Economic Reforms: A Path to Strong Growth and Stability
In a bid to revitalize its economy, Libya has embarked on a comprehensive reform program aimed at enhancing public finances, monetary policy, and banking supervision. The reforms, which are expected to be implemented over the next few years, are designed to promote strong, sustainable, and non-inflationary economic growth.
Public Finances Reform
Abolishing the 70/30 Rule
The government plans to abolish the 70/30 rule, under which 70% of budgetary oil revenue is allocated to capital spending and the remaining 30% to current expenditure. This move aims to provide a more balanced allocation of resources.
Unified Consolidated Budget Framework
A unified consolidated budget framework will be developed, incorporating administrative, development, and subsidies budgets, as well as extrabudgetary government operations. This will help streamline budgeting processes and ensure transparency.
Improving Revenue Administration
To improve revenue administration, the government plans to:
- Integrate service fees and consumption taxes on imports into the tariff structure
- Simplify tax rates
- Introduce new payment arrangements for corporations
- Restructure the tax office with a focus on self-assessment and automated business processes
Monetary Reforms
Indirect Monetary Policy Instruments
The Central Bank of Libya (CBL) is expected to adopt indirect monetary policy instruments, including:
- Issuance of certificates of deposit (CDs)
- Revival of the interbank money market
Strengthening Monetary Policy Committee and Data Base
The CBL will also strengthen its monetary policy committee, improve its data base and economic monitoring capabilities, and reinforce its daily monetary management.
Bank Restructuring
Enhancing Banking Supervision
The government plans to restructure the banking system, enhance banking supervision, modernize the domestic payment system, and revise legal and regulatory frameworks. The Central Bank of Libya (CBL) will continue implementing a strategic work plan to strengthen banking supervision, with the aim of accelerating the buildup of an effective banking supervision capability.
Performance Assessment
Milestones
The success of these reforms will depend on periodic assessments of their implementation and achievement of their objectives. The government has planned a series of milestones for each reform program, including:
- Completion of a unified consolidated budget framework by the end of 2006
- Issuance of CDs by the CBL in 2007
Conclusion
Libya’s economic reforms aim to create an environment conducive to strong growth and stability. By enhancing public finances, monetary policy, and banking supervision, the government hopes to promote private sector activities, increase the potential and efficiency of the non-oil economy, and achieve sustainable economic development.