Libya beyond the revolution: challenges and opportunities

The conflict in Libya in 2011 had a severe impact on the economy, but the contraction is expected to be temporary. This paper demonstrates that Libya has the potential for a robust diverse and inclusive growth.

The paper highlights that:

• in the short term, the authorities need to balance recurrent spending pressures against the need for fiscal sustainability and prospects for private-sector development
• over the medium term, the main challenge will be reorienting the economy away from hydrocarbon dependence and promoting job creation and inclusive growth
• in this sense, medium-term efforts should focus on capacity building, private-sector development and improving education, as well as putting in place an effective social safety net
• indeed, there is significant scope for diversification into tourism and trade, in light of Libya’s rich archeological sites, Mediterranean climate, and proximity to major European markets
• nevertheless, Libya will need to upgrade basic infrastructure, including roads and electricity, with investment targeted at removing obstacles to economic development
• in addition, there is a need to set up a clear macro-fiscal policy framework with a consistent fiscal rule reflecting the country’s economic objectives

Key conclusions contain:

• ensuring macroeconomic stability and maintaining investor confidence require greater policy coordination among various institutions
• fiscal consolidation will be required to provide the needed space for capital and reconstruction spending while preserving long-term fiscal sustainability

The authors lastly point that Libya’s wealth opens a choice of paths for the future: it can fall into the fake-development trap of many resource-rich countries, or it can pursue a course of sustainable and inclusive development.