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.?

The Libyan economy depends primarily upon revenues from the oil sector, which contribute about 95% of export earnings, about one-quarter of GDP, and 60% of public sector wages. Substantial revenues from the energy sector coupled with a small population give Libya one of the highest per capita GDPs in Africa, but little of this income flows down to the lower orders of society. Libyan officials in the past four years have made progress on economic reforms as part of a broader campaign to reintegrate the country into the international fold. This effort picked up steam after UN sanctions were lifted in September 2003 and as Libya announced that it would abandon programs to build weapons of mass destruction in December 2003. Almost all US unilateral sanctions against Libya were removed in April 2004, helping Libya attract more foreign direct investment, mostly in the energy sector. Libya faces a long road ahead in liberalizing the socialist-oriented economy, but initial steps - including applying for WTO membership, reducing some subsidies, and announcing plans for privatization - are laying the groundwork for a transition to a more market-based economy. The non-oil manufacturing and construction sectors, which account for about 20% of GDP, have expanded from processing mostly agricultural products to include the production of petrochemicals, iron, steel, and aluminum. Climatic conditions and poor soils severely limit agricultural output, and Libya imports about 75% of its food.

GDP (purchasing power parity): $48.29 billion (2005 est.)

GDP (official exchange rate): $33.48 billion (2005 est.)

GDP - real growth rate: 8.5% (2005 est.)

GDP - per capita (PPP): $8,400 (2005 est.)

GDP - composition by sector:
agriculture: 7.6%
industry: 49.9%
services: 42.5% (2005 est.)

Labor force: 1.64 million (2005 est.)

Labor force - by occupation: agriculture 17%, industry 23%, services 59% (2004 est.)

Unemployment rate: 30% (2004 est.)

Population below poverty line: NA%

Household income or consumption by percentage share:
lowest 10%: NA%
highest 10%: NA%

Inflation rate (consumer prices): -1% (2005 est.)

Investment (gross fixed): 11.4% of GDP (2005 est.)

Budget:
revenues: $25.34 billion
expenditures: $15.47 billion; including capital expenditures of $5.6 billion (2005 est.)

Public debt: 8% of GDP (2005 est.)

Agriculture - products: wheat, barley, olives, dates, citrus, vegetables, peanuts, soybeans; cattle

Industries: petroleum, iron and steel, food processing, textiles, handicrafts, cement

Industrial production growth rate: NA%

Electricity - production: 14.4 billion kWh (2003)

Electricity - consumption: 13.39 billion kWh (2003)

Electricity - exports: 0 kWh (2003)

Electricity - imports: 0 kWh (2003)

Oil - production: 1.643 million bbl/day (2005 est.)

Oil - consumption: 237,000 bbl/day (2004 est.

Oil - exports: NA bbl/day

Oil - imports: NA bbl/day

Oil - proved reserves: 40 billion bbl (2005 est.)

Natural gas - production: 7 billion cu m (2003 est.)

Natural gas - consumption: 6.25 billion cu m (2003 est.)

Natural gas - exports: 770 million cu m (2001 est.)

Natural gas - imports: 0 cu m (2001 est.)

Natural gas - proved reserves: 1.321 trillion cu m (2005)

Current account balance: $14.44 billion (2005 est.)

Exports: $30.79 billion f.o.b. (2005 est.)

Exports - commodities: crude oil, refined petroleum products, natural gas

Exports - partners: Italy 37%, Germany 16.6%, Spain 11.9%, Turkey 7.1%, France 6.2% (2004)

Imports: $10.82 billion f.o.b. (2005 est.)

Imports - commodities: machinery, transport equipment, semi-finished goods, food, consumer products

Imports - partners:
Italy 25.5%, Germany 11%, South Korea 6.1%,
UK 5.4%, Tunisia 4.7%, Turkey 4.6% (2004)

Reserves of foreign exchange and gold: $32.31 billion (2005 est.)

Debt - external: $4.267 billion (2005 est.)

Economic aid - recipient: ODA, $4.4 million (2002)

Currency (code): Libyan dinar (LYD)

Exchange rates:
Libyan dinars per US dollar - 1.3084 (2005), 1.305 (2004), 1.2929 (2003), 1.2707 (2002), 0.6051 (2001)

Fiscal year: calendar year