1 Recent economic developments in Libya. Content 2 I. Facts II. An overview of the Libyan economy III. The external sector IV. The public finance V. The.

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Recent economic developments in Libya

Content

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I. Facts II. An overview of the Libyan economyIII. The external sectorIV. The public financeV. The banking sectorVI. Future outlook and prospects

I. Facts

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Area 1,759,540 KM2

Population 6 million Apr.

Unemployment rate 33%

Participation rate 40%

Main explored/Exploited economic resources

Oil & Gas

Currency Libyan Dinar (LD), 1,000 Dirhams

Average per capita in 2010 USD13,000

The exchange rate is pegged to the SDR at 0.5175 per LD1

Exchange rate against USD LD1.25=USD1

Exchange rate against Euro LD1.70=Euro1

II. An overview of the Libyan economy

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The Libyan economy is undiversified, and depends heavily on a depleting primary commodity exports, namely oil and gas.

The Libyan economy is suffering from water scarcity, a challenge to the potentials for diversification of economic activity and population distribution in different regions.

Shortage of labor force in general, and skilled labor force in particular.

High degree of openness to the outside world in terms of imports

The features of the Libyan economy

•Real GDP (2005-2011)

In recent years, the Libyan economy has steadily been growing. However, in 2011, as a result of the destruction of infrastructure and lower oil production, the Libyan economy contracted by about 60%.

Hydrocarbon Real GDP in 2011 contracted with about 71%, as crude oil production fell from about 1.77 mbd to almost 22,000 bd.

Non-Hydrocarbon GDP contracted in 2011 with about 50%.

The economy is expected to recover rapidly, restoring its pre conflict growth in 2012, as oil sector regains its performance, the security situation stabilizes , and the non-oil sectors reinstate to the previous activity level.

The crude oil production increased from 22,000 bd in June 2011 to 980 thousand bd in December 2011 and 1.4mbd in Feb2 012 . Oil production is expected to reach its pre-conflict level by mid 2012.

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II. An overview of the Libyan economy

The growth of real GDP (constant prices of 2003)

The growth rate of the real GDP has been

modest during the period 2005-2010,

despite of a rising government spending.

  In 2011, real GDP plunged with about

60%, as a result of contraction in both oil

and non-oil components with 71% and

50% respectively.

GDP growth rate depends heavily on the

public spending. The role of the private

sector is still limited as a result of socialist

economy orientation that prevailed for a

long time.

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II. An overview of the Libyan economy

II. An overview of the Libyan economy

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The level of inflation in the Libyan economy, as measured by

consumer price index (CPI), remained relatively stable during

the period 2005-2010. The inflation remained within one

digit rage, except in 2008 , where high inflation rates in

Libya’s trade partners, the expansion of public spending, and

loans by specialized banks drove it slightly higher, just to fall

afterward to low levels again.

Due to the exceptional situation in Libya in 2011, the

inflation rate rose rapidly to about 15.8% . This rise was

mainly due to shortages in the supply and the freezing of

Libyan funds abroad.

As the supply is now relaxing and the funds unfrozen,

inflation is decelerating and is expected to be in checked

by mid-2012 .

The inflation rate in the Libyan economy is affected to a

large extent by inflation imported from trade partners (mainly

the euro zone), as well as the public spending.

Annual inflation rate (average CPI), 2003=100

The LD exchange rates against USD and the Euro 2005-2011

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The Libyan dinar (LD) exchange rate is

pegged to the SDRs at SDRs 0.5175 =LD1.

The LD exchange rate was relatively

stable over the period 2005-2010, largely

because of the exchange rate mechanism

in place. According to international

institutions, this mechanism serviced well

the Libyan economy.

In 2011, and because of the conflict in

Libya, an exchange parallel market

emerged. The margin between the

parallel market and the official rates was

very narrow and volatile, despite the

restrictions imposed on foreign exchange

transactions.

II.An overview of the Libyan economy

Foreign trade

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The Libyan trade balance has constantly been in surpluses, driven by oil sector exports. Even with the sharp decline in oil exports and the massive damages caused to the production facilities, in 2011, the trade balance was in surplus, due to a significant drop in imports of equipment and foreign transfers .

The value of exports dropped sharply, affected by the conflict in Libya in 2011. Estimated decline in exports of goods is about 61%, compared to 2010. Exports are expected to recover quickly as oil production gets back to normal levels.`

Imports fell by about 54%, in 2011, affected by the conflict, lack of foreign currency, low letters of credit.

Following the unfreezing of the Libyan foreign assets, resumption of currency sales to the public and the resumption of the opening of letters of credit, it is expected that imports would get rapidly back to normal levels in 2012.

III. External Sector

Exports structure

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Oil exports dominate the Libya exports, accounting for, on average during the period 2005-2011, for about 97% of total exports. Oil exports also constitute the main source of foreign currency and government revenues.

The Libyan exports by trade partner are as follows: European countries 75.6%, Asian countries, 13.6%, Americas 7.2%, Arab countries, 3.5%, and African countries 0.1%

The Libyan imports by trade partner are as follows: European countries, 51.5% Asian countries, 30.3% Arab countries, 8.9% Americas 8.7% African countries 0.6%

III. External Sector, con.

III. External Sector, con.

Foreign currency official reserves

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As a result of continued surpluses in the balance of payments, Libya’s official reserves have been growing steadily in recent years.

On December 16, 2011, the foreign reserves of the Central Bank of Libya were unfrozen, contributing significantly to easing liquidity crisis and the financing of imports.

It should be noted that the current account is been liberalized. All restrictions on current operations were lifted since mid-June 2003, in line with the provisions of Article VIII of the Articles of Agreement of the IMF.

IV. The Public Finance

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There was an expansionary spending on investment projects in 2005-2010. Contracts signed in this period with many companies, mostly foreign companies, are estimated with about LD150 billion.

Libya benefited from the significant high oil prices during the period.

Due to the disruption of oil production and the decline, thus, in the value of oil exports and non-oil revenues in 2011, public revenues plunged sharply to LD16.8 billion, accounting for oil revenues of LD15.8 billion and non-oil revenues of about LD1 billion.

The public budget in 2011 realized, for the first, a deficit of LD6.6 billion.

The Public budget

IV. The Public Finance, con .Public revenues

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public revenues are dominated by oil revenues on, accounting for about 97% of total revenues.

The public budget witnessed a significant expansion in public spending in recent years, especially on the investment budget, which accounted for about 50% of total spending in 2010.

The public spending dropped sharply because of the conflict in Libya in 2011. The drop was mainly in the investment budget. In fact, there has been no investment spending at all.

The wage bill is the second largest item in the budget. This item has witnessed a significant increase.

The general and administrative spending item continue to grow steadily, and comes in third place on spending priorities.

Subsidies witnessed a significant increase, especially in 2010. The subsidy is mainly for fuel, electricity and food. Subsidy policy continued even in 2011.

The state seeks to diversify the income and growth sources away from oil, with the objective to maintain their stability and sustainability.

As overall revenues improve and the security situation stabilizes , it is expected that public spending will increase sharply, especially on wages, subsidy and reconstruction.

IV. The Public Finance, con .The public budget for 2012

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Revenue structure Compared with its 2010 level, the public budget for

2012 has witnessed a significant increase of about 7.0 bn, hitting a record of LD 68.5 bn. In relative terms, this increase represents a 11.3 percent growth from 2010.

As usual, public revenues in 2012 are mainly financed by oil revenues. Oil revenues accounting for about 95.3% of total revenues, or LD65.3 bn.

Non-oil revenue financed about 4.7% of the budget, or LD3.2 bn.

Expenditures structure The public spending in 2012 is distributed as follows:

wages LD 18.6 bn; general and administrative spending LD12.1 bn; subsidies LD14.6 bn; investment and restructuring spending of LD19.1 bn; and public debt repayment LD4 bn.

Executive status as of the end of the First Quarter Collected oil revenues LYD13.8 bn, non-oil revenues LD

0.2 bn. Actual public spending in the First Quarter of 2012;

wages LD 4.1 bn; the general and administrative spending LD2.8 bn; subsidies LD 2.6 bn; and investment and restructuring spending of LD0.5 bn.

V. The Banking Sector

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V. The Banking Sector, con.

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Banks in Libya are subject to the provisions of Law No. (1) for the year 2005, regarding the banks. The main services provided by commercial banks under the Law are:

payment /collection of checks drawn by/on customers. Services related to credits letters, cash against documents and letters of

guarantee. Issuance and management of payment instruments, including cash

withdrawals, fund transfers, payment and credit cards, traveler’s checks. Transact in money market and capital market instruments, buying and

selling for its own account or on behalf of their clients. Buy and sell debt, with or without recourse. Dealing in spot and/or future foreign currency exchange markets. Managing, underwriting and allocating public offerings of securities. Management and custody of securities and valuables. Any other activities that relate to banking activity, if approved the CBL.

The commercial banks are also subject to the provisions of Law No. (2) for the year 2005 on “Combating Money Laundering”, as well as the “Banking Corporate Manual” issued in 2010.

Ownership structure of the commercial banks

The Libyan banking sector consists of 16 banks, as follows:

• Five large state-owned commercial banks with a participation from foreign banks by 19% of the equity in two banks, as a part of a strategic partnership to develop banking practices.

• These banks dominate more than 90% of the banking sector deposits.

• Nine private banks owned by Libyans, with a foreign participation in some of them by 49%, as a part of the abovementioned strategic partnership.

• Two joint banks, one between the Libyan state and the United Arab Emirates and the other between Libya and Qatar.

The CBL has lunched a privatization strategy to level the ground for fair competition in the banking system, and to comply with its appropriate regulatory role.Despite their relative small size, the private banks performance is evolving rapidly taking advantage of the great flexibility in their organizational structures, and the operational considerations they take into account.17

V. The Banking Sector, con.

V. The Banking Sector, con.The structure of depository liabilities of commercial banks

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The assets and liabilities of commercial

banks continue to grow steadily in recent

years, taking advantage of the rapid growth

in their depository liabilities, resulting from

the growth in public spending, improved

banking services and more confidence in

the banking sector.

Depository liabilities of commercial banks

in center mainly on demand deposits,

which are characterized by a high volatility,

and cash margins on letters of credit and

letters of guarantee.

Despite the rapid and large growth in the

depository liabilities, the Libyan commercial

banks have high capital adequacy ratios.

V. The Banking Sector, con.The liquidity of the commercial banks

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The liquid assets in the banking sector grew rapidly in recent years, driven by expansion in public spending.

Excess liquidity also rose significantly due to limited employment opportunities that meet the criteria for banking investment.

The distribution of excess liquidity in the banking sector is almost homogeneous, regardless of ownership and size.

Currently, the only outlet for the employment of excess liquidity is the certificates of deposit (CDs) of the CBL. The CBL issues CDs for commercial banks in order to absorb the excess liquidity.

V. The Banking Sector, con.

Credit extended by commercial banks

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The volume of credit as of the end of December 2011 is estimated by LD12.8 billion. As such, a it recorded a contraction by -2.0%, compared by end-2010. The credit extended to both public and private sectors declined, because of the economic conditions that prevailed in the country in 2011.

Total credit to nominal GDP is about 20%. Despite continued growth in the credit

extended by banks, both the ratio of credit to the depository liabilities and the ratio of credit to total assets are low, compared to those of other similar structure economies.

It expected that with the introduction of Sharia compliant banking services the credit would grow and restructure.

Geographical distribution of bank branches and agencies

The number of branches and agencies of commercial banks is 482 branches and agency, distributed in all parts of Libya.

Commercial banks dominate account for the greatest number of branches, due to the size and ownership nature .

Branches and agencies are concentrated in urban areas with active trade.

  In Libya there is currently 24 representative offices of foreign banks.

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V. The Banking Sector, con.

Banking soundness indicators

The Libyan banks have good soundness indicators. Average capital adequacy, in accordance with the Basel I Principles, was 17.3% in 2010.

Non-performing loans to total assets dropped significantly during 2005-2011, due to the adoption by commercial banks of more stringent standards in the assessment of credit opportunities, as well as improvement in the performance of debt collection.

Non-performing loans to total loans during the period fell for the same reasons above.

The high liquid assets to total assets ratio is noteworthy.

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V. The Banking Sector, con.

Indicator 2004 2005200

62007

2008

2009

2010

Tier II Capital Adequacy Ratio

10.4 10.9 11.6 11.8 12.2 14.5 17.3

Non-performing loans / Assets

14.9 10.5 8 6.9 4.7 3.4 3.4

Non-performing loans / Loans

35.3 31.7 26.1 26.2 22.5 17.0 17.2

Net Profit / Average Assets

0.4 0.5 0.5 0.5 0.6 1.3 1.0

Liquid Assets / Assets 49.8 59.8 60.2 68.0 73.4 74.1 74.3

The Money Supply

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As a result of the expansionary spending policy pursued by the Government during the period, money supply witnessed a rapid growth. This growth centered mainly in demand deposits and currency outside banks.

The growth of money supply did have inflationary effects on prices of goods and services, except on real estate prices which have experienced a remarkable increase, due to the public spending policy directed towards infrastructure projects and construction of housing units.

The National Payment System

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VI. The outlook and prospects

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The economic activity is expected to recover in the second half of 2012, as the security situation stabilizes, and the oil production regains its pre Feb. 17 Revolution levels.

All in force laws and legislations, including the Law No. (1) for the year 2005 on the banks, would be reviewed in line with the new State legislations and international best practices.

Strengthening the monetary policy overall framework, to ensure the achievement of its objectives in price stability and the banking system soundness.

Examine and reevaluate monetary policy instruments and their effectiveness and relevance to the economic and financial developments.

Finalize the National Payments System to ensure the provision of banking services with ease.

Work is underway to add a new chapter for the Islamic Banking in the Law No. (1) for the year 2005 on the banks.

The privatization of the banks would continue.

VI. The outlook and prospects, con.

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The banking sector restructure would continue so as to meet the aspirations of the private sector.

Training in the banking sector would be a priority. The training strategy would be built on acquiring professional qualifications and having good ties with international training centers to benefit of their expertise.

The banking sector would be contributing to scale down the unemployment by contributing to the development of SMEs.

Privatizing as many state-owned enterprises as possible. reconstruction of the infrastructure that suffered

destruction during the liberalization war. Qualifying the revolutionists. Qualifying those suffering as a result of the war. Continue to cooperate with IMF to accomplish outstanding

projects.

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Thank you for your attention