IMF: Libya's finances 'precarious'

WASHINGTON - Libya's financial situation remains precarious despite the end of fighting and the resumption of oil exports, the International Monetary Fund said Monday.
But the IMF said the country's economy "could recover quickly" as the security situation eases, after a 60 percent contraction last year during the bloody uprising that overthrew strongman Moamer Gathafi.
The release of some of the estimated $150 billion in Gathafi regime assets that were frozen abroad during the conflict has given the Central Bank of Libya (CBL) needed funds to intervene in exchange markets and support the dinar, and create a buffer for the government to keep paying civil servants.
However, "despite the removal of UN sanctions on the CBL, the public sector's financial situation remains precarious," the IMF said in a mission report.
The government continues to borrow from the central bank to fund itself, but the CBL and commercial banks themselves are short of actual banknotes to match the demand.
The IMF mission sent to consult with the government on its situation said that oil production will more than double this year from last, and is expected to reach pre-uprising levels by 2014.
With the recovery in the oil sector, the economy could rebound with a near-70 percent expansion this year and 20 percent in 2013, according to IMF projections.
With stabilization, too, inflation should be pulled down to below two percent this year from 14.1 percent last year.
However "risks to the outlook include delays in normalizing the security situation and lower international prices for oil and gas," it said.
The IMF also said the government had to contend with large pay increases granted civil servants by the Gathafi regime that will double the government wage bill from two years ago to 18.7 percent of economic output this year.
Meanwhile the high level of government wages "will reduce the incentive for individuals to seek employment in the private sector and undermine efforts to advance economic diversification."
"The government can afford to finance elevated current spending in the short term," it said.
But it warned that the current level of budgetary commitments would be hard to sustain over the medium term.