Libya

Libya’s oil export revenues have increased sharply in recent years, to $28.3 billion in 2005 and a forecast $31.2 billion in 2006, up from only $5.9 billion in 1998. The rebound in oil prices since 1999, along with the lifting of U.S. and U.N. sanctions, has resulted in an improvement in Libya's foreign reserves ($31 billion as of June 2005), trade balance (a $17 billion surplus in 2005) and overall economic situation (strong growth; see below). On the other hand, higher oil earnings may also be removing incentives for Libya to restrain spending and to implement needed economic reforms.

In part due to higher oil export revenues, Libya experienced strong economic growth during 2004 and 2005, with real gross domestic product (GDP) estimated to have grown by about 6.7 percent and 6.5 percent, respectively. For 2006, real GDP is expected to grow 6.7 percent, with consumer price inflation of 3.1 percent. Despite the country's recent economic growth, unemployment remains high. In addition, Libya's unclear legal structure, often-arbitrary government decision making process, bloated public sector (as much as 60 percent of government spending goes towards paying public sector employees' salaries), and various structural rigidities have posed impediments to foreign investment and economic growth.

There are tentative and halting signs that Libya intends to move towards economic reform, liberalization, and a reduction in the state's direct role in the economy. In June 2003, President Qadhafi said that the country's public sector had failed and should be abolished, and called for privatization of the country's oil sector, in addition to other areas of the economy. Qadhafi also pledged to bring Libya into the World Trade Organization (WTO), and appointed former Trade and Economy Minister Shukri Muhammad Ghanem, a proponent of privatization, as Prime Minister. In June 2003, Libya unified its multi-tiered exchange rate system (official, commercial, black-market) around the IMF's special drawing rights, effectively devaluing the country's currency. Among other goals, the devaluation aimed to increase the competitiveness of Libyan firms and to help attract foreign investment into the country. In October 2003, Prime Minister Ghanem announced a list of 361 firms in a variety of sectors -- steel, petrochemicals, cement, and agriculture -- to be privatized in 2004. To date, however, little progress has been made on this agenda. In July 2005, Libya decided to eliminate customs duties on 3,500 imported goods.

On April 5, 1999, more than 10 years after the 1988 bombing of Pan Am flight 103 over Lockerbie, Scotland that killed 270 people, Libya extradited two men suspected in the attack. In response, the United Nations suspended economic and other sanctions against Libya which had been in place since April 1992. In late April 2003, Libya's foreign minister stated that Libya had "accepted civil responsibility for the actions of its officials in the Lockerbie affair," and in September 2003 the UN Security Council officially lifted its sanctions. On February 26, 2004, following a declaration by Libya that it would abandon its weapons of mass destruction (WMD) programs and comply with the Nuclear Non-Proliferation Treaty (NNPT), the United States rescinded a ban on travel to Libya and authorized U.S. oil companies with pre-sanctions holdings in Libya to negotiate on their return to the country if and when the United States lifted economic sanctions. On April 23, 2004, the United States eased its economic sanctions against Libya, with a written statement from the White House Press Secretary stating, “U.S. companies will be able to buy or invest in Libyan oil and products. U.S. commercial banks and other financial service providers will be able to participate in and support these transactions." On the same day, Libya’s state-owned National Oil Corporation (NOC) announced its first shipment of oil to the United States in over 20 years. On June 28, 2004, the United States and Libya formally resumed diplomatic relations, severed since May 1981. Finally, on September 20, 2004, President Bush signed Executive Order 12543, lifting most remaining U.S. sanctions against Libya and paving the way for U.S. oil companies to try to secure contracts or revive previous contracts for tapping Libya’s oil reserves. The Order also revoked any restrictions on importation of oil products refined in Libya, and unblocked certain formerly blocked assets.

Libya is hoping to reduce its dependency on oil as the country's sole source of income, and to increase investment in agriculture, tourism, fisheries, mining, and natural gas. Libya's agricultural sector is a top governmental priority. Hopes are that the Great Man Made River (GMR), a five-phase, $30 billion project to bring water from underground aquifers beneath the Sahara to the Mediterranean coast, will reduce the country's water shortage and its dependence on food imports. Libya also is attempting to position itself as a key economic intermediary between Europe and Africa, becoming more involved in the Euro-Mediterranean process and pushing for a new African Union. In April 2001, members of the Arab Maghreb Union (Algeria, Libya, Mauritania, Morocco, and Tunisia) agreed to encourage intra-regional cooperation on trade, customs, banking, and investment issues.