Libya for many years fixed its currency to the USD and then to the SDR with very limited monetary operations. In the 1990s it abandoned the exchange rate anchor without any serious alternative, but returned to fixing the exchange rate against the SDR in the 2000s. The civil war and political fragmentation from 2014 led to a lack of monetary control and a lack of policy framework.
|Years||Targets and attainment||Classification|
|1974-91||initial peg to USD with narrow margins, no real forex market, monetary policy not geared to exchange rate; banking system concentrated and largely government-owned, central bank has various powers including interest rate (hardly ever used) and credit controls, but in early years main active instrument is moral suasion; monetary growth heavily influenced by government’s (oil-revenue-financed) spending in excess of domestic revenues, and occasional (often direct) measures to tighten liquidity; statistical data availability poor; wide-ranging price and other controls (and poor inflation data); peg shifted to SDR in 1986, with wide band (+/-7.5%) but narrow spread around CB’s chosen rate close to the lower border of band; private sector share in economic activity fell in 1970s but rose with limited liberalisation in late 1980s; parallel forex market from 1988, with rising premium and volume||augmented exchange rate fix AERF|
|1992-2001||1992 band around SDR parity widened to +/-11%, then to +/-16%, 1993 to +/-25%, 1994 to 47%, 1998 to 77.5%, with rate fixed always at lower border; rising premium and transactions in parallel forex market; 1993 central bank gets more control over reserve and liquidity requirements, but there is no coherent monetary policy programme; some small private local banks created, but banking system is technically backward and lends very little to private sector, while monetary policy relies on credit controls; UN economic sanctions from 1992, broadened 1993, suspended 1999, but US 1996 sanctions remain; 1999 parallel forex market legalised as ‘special’ exchange rate, some convergence of special and official exchange rates||unstructured discretion UD|
|2002-13||exchange rates unified via 50% devaluation of official rate, unified rate pegged to SDR with very narrow margins, some wider trade and forex liberalisation; 2003 elimination of Great Man-Made River exchange tax and 15% devaluation; 2005 increase in central bank autonomy, partial interest rate liberalisation; some efforts to improve operation of financial system and develop indirect monetary instruments, e.g. central bank certificates of deposit from 2008, but large excess liquidity in banking system; some improvements in statistics available; 2011 heavy-handed government response to Arab Spring protests followed by overthrow of government and partial normalisation, but continuing political fragmentation and some armed conflict; interest payments in financial transactions banned 2013 but central bank favours dual (conventional and Islamic) banking system||augmented exchange rate fix AERF|
|2014-17||[Note: no Article IV reports after May 2013, little information available from other IMF reports]
civil war 2014, continuing political fragmentation and armed conflict which affects oil production as well as wider economy, fiscal/monetary policies, and governance; official exchange rate little changed but parallel market re-emerges with large premium; inflation goes above 25%
|unstructured discretion UD (tentative)|
Selected IMF references: RED 1976 pp26-8; RED 1978 pp40, 52; RED 1982 p33; RED 1987 pp16, 41-2; SR 1989 pp14-15; RED 1994 pp1-2, 24, 39-40; SR 1994 pp13-14, 16, 18; SR 1996 pp11, 16-17, 18-19, 21; RED 1999 pp31, 41-3; SR 1999 pp16-19; SR 2001 pp7, 12; SR 2002 pp13-14, 18-20, 22; SR 2003 pp11, 17; SR 2005 p8; SR 2008 pp7, 10; SR 2009 p11; SR 2011 pp12, 30-34; SR 2013 pp14-15, 21; Arab Countries in Transition: Economic Outlook and Key Challenges, October 2015, pp12-13; Regional Outlook: Middle East and Central Asia, November 2018, pp9-11.
Additional references: Central Bank of Libya Economic Bulletin, 2013 Q1, table 17; Economic Bulletin, 2018 Q1, table 35; World Bank, Libya Economic Outlook, April 2018.
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