The Libyan economy depends heavily on the oil sector and remains largely state controlled. The authorities initiated in 2002 steps to liberalize the economy and on January 1, 2002, the foreign exchange rationing and import licensing requirements were eliminated and the dual exchange rate system unified. Economic developments in 2002 were favourably impacted by these developments and by the accommodating fiscal policies. Real non-oil GDP grew by about 3% although the external current account shifted to a deficit and the official reserves decreased to about US$ 13,7 billion or 18,7 months of imports.

Economic performance
The non-oil overall deficit of the state budget widened to 32% in 2002 from about 29% of GD{ in 2001. Expenditure growth was driven in 2002 by budgeted capital expenditure growth of 3,2% of GDP, mainly on development projects in communications, construction, health, housing and education. On the revenue side, oil revenue in Libyan dinar terms was boosted by the large devaluation of the official exchange rate at the beginning of 2002. Tax revenue decreased and customs revenue stagnated desp9ite a surge in imports, mainly as a result of widespread exemptions granted to public enterprises. The overall consolidated budget registered a surplus of 4% of GDP.
The government took advantage of the higher oil revenue to become a net lender in 2002 relative to the banking sector, from a position of net borrower in 2001. There was some progress in the banking sector reform agenda with a number of measures adopted to strengthen banking supervision. Two new private commercial banks and one private regional bank were licensed in 2002 and preparations were started for the privatization of a public bank. Another commercial bank was considered to be privatized and a committee supervising the restructuring of banks was established in 2002.
The authorities implemented other important measures, including the elimination of the Great Man-Made River exchange tax, which was levied on private foreign exchange transactions, and the devaluation of the exchange rate by 15%. The advanced import deposit requirements were replaced by a regulation limiting the use of bank credit for import purposes.

The recent steps toward liberalization and reducing the role of the state in the economy have paved the way for improved efficiency and competition and a higher level of economic growth. However, the existing controls and restrictions, as well as subsidies and exemptions, continue to distort economic choices, especially in the non-oil sector.
The oil sector still plays a dominant role in the national economy, representing a share of 50% of GDP in 2002 and about 95% of export revenues. To lessen the impact of dependence on one sector subject to a volatile international market, Libya is initiating bold measures to diversify its economy and try to diminish this dependence.
Within this respect, tourism was given priority. Here Libya enjoys numerous attractive factors: unspoilt beaches on a Mediterranean coastline of about 2,000 km, landscapes of golden desert dunes, remains of whole cities of Greek and Roman cites (Cuene, Leptis Magna, Sevrata). It is envisaged that the development of the tourism sector would act as a catalyst to the development of all other sectors enhancing a vast rpogramme of investment.
Based on the projected increases in oil prices and production, economic prospects in 2003 were favourable. Real non-oil GDP expanded by about 2,5% and strong wxternal fiscal and current account surpluses were registered, along with a buildup of official reserves to about 24 months of imports.

Future prospects
The key challenge in the medium and long term remains to achieve sustainable high rates of economic growth in order to generate employment opportunities for a rapidly growing labour force. The authorities agree that this goal needs a drastic reduction of the dominant role of the public sector and increased contribution by the private sector.
The generally favourable medium term macroeconomic outlook does not diminish the need to implement key structural reforms aimed at achieving higher sustainable growth. Priorities on the reform agenda include removing the remaining trade restrictions, bringing domestic prices in line with world prices and addressing explicitly the impact of price realignments on vulnerable groups, public enterprises and banks.
Structural reforms that require longer preparations include the restructuring of public banks and enterprises, reforming the system of subsidies and transfers, legal and regulatory reforms and civil service, tax and customs administration reforms.
The fiscal policy, the key to macroeconomic stability in Libya, continues to be shaped by the availability of oil revenues. The authorities aim to implement stricter control over all extra-budgetary funds, particularly the Oil Reserve Fund, and reassesses the distribution of oil revenue between capital and current expenditures. Efforts are made to rationalize the tax system and to broaden its base while strengthening the administration.
The authorities are also working to remove the remaining trade restrictions by scaling down the list of import and export bans, eliminating import monopolies, phasing out bilateral payments agreements and initiating a programme of multilateral liberalization.
Libya now clearly intends to integrate the regional and global economy and to enter free trade agreements with Arab countries and joining the World Trade Organisation. The authorities further more strive to regularize relations with creditors and to expedite the clearing of remaining external arrears. 

Libya is Africa's biggest oil producer and Europe's main North African oil supplier. Since 1968, the state-owned National Oil Company (NOC) together with its 33 subsidiaries has controlled the entire oil and gas industry, both upstream and down-stream. Since 1979, NOC has been allowed to enter into agreements with foreign oil companies. Numerous international companies are engaged in exploration and production sharing agreements with NOC.
The country expressed willingness to privatize its oil sector in 2003. The privatization is forecasted to renew interest from international companies and the reformed industry could be managed by Libyans in partnership with international firms.

Basic Economic and Financial Indicators, 1999-2003

Source.: International  Monetary Fund
 

Sectoral Distribution of GDP at Current Prices, 1999-2003

Source.: Ministry of Planning