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InterviewsOctober 4 2009

Growth beyond oil

Farhat Bengdara, governor of the Central Bank of LibyaThe governor of the Central Bank of Libya, a key figure in Libya's financial and economic transformation, talks to Stephen Timewell about the strategies in place to reform the banking sector and achieve non-oil-dependent growth.
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Growth beyond oil

Q: What is the strategy for the Libyan economy?

A: Libya is trying to create a more liberal economy and implement a comprehensive reform programme. The main objective is to maintain financial stability and achieve sustainable economic growth. We are keen not to depend on oil and to develop new areas to broaden Libya's production base.

We want the role of government to become less and less and the economy more privatised. In time, we want the government to move away from its ownership role in the economy to become more of a prudent regulator and let the private sector take the lead.

Q: Recent years have seen changes in the financial sector with two banks privatised, private banks have been encouraged to find foreign strategic partners and reforms are being considered for the specialised credit institutions. How do you see the banking and financial sector evolving?

A: After two years, the banks will be privatised. I hope to see new investment instruments along with the private sector involvement in major projects. I also want to see more effective regulations and more foreign banks operating in Libya. More foreign banks will bring efficiencies to the banking sector.

Q: The central bank is seen to be leading the reform effort and is also undergoing a major restructuring itself. How do you view the role of the central bank in the future and what changes do you envisage?

A: In the past, the central bank operated mainly as the government commercial bank, now that is changing. A broad-ranging programme is now under way to modernise the central bank, including enhancing the monetary policy framework, developing indirect monetary instruments, establishing a functional-based organisational structure and strengthening bank supervision. The programme includes reforms in the areas of research, forecasting and monetary policy implementation as well as human resource management.

The central bank is committed to building a modern, efficient banking system to support growth and its key role is to maintain financial and price stability and achieve sustainable non-oil economic growth.

This year a strategic planning unit is to be established at the central bank to prepare the bank to think strategically about what needs to be developed. Also a new human resources department has been created to help in the recruitment and training of staff. The many new divisions, particularly in the research department, will help build the central bank's transparent relationship with the markets and we plan to issue quarterly bulletins.

The aim is for the central bank to become a centre of excellence for macroeconomic issues. Monetary policy instruments will be developed further and currently plans are underway to expand the range of the Central Bank of Libya (CBL) certificate of deposit (CD), which was introduced in May 2008, especially for shorter maturities. Also, preparations are under way for an auction-style CD market and to develop the interbank and secondary markets in CDs.

Banking supervision and regulations are being improved in line with international standards, bank reporting is also being enhanced along with supervisory procedures and a credit bureau has been established.

Q: In July this year, Standard & Poor's gave Libya an investment grade rating similar to that of Poland and Malaysia. What does this mean for Libya and how do you see the future?

A: The rating shows to the rest of the world and to the international markets that a broad economic reform programme is being implemented, external and fiscal balances are very strong, and that Libya has no financial problems. Also the stable outlook given is very positive and, while the investment grade is strong, we feel that Libya can go even higher in the future.

Q: What has been the impact of the financial crisis on Libya and its banks?

A: In 2009, the global crisis has had no impact on economic activity in Libya, with the only effects limited to reduced budget and current account surpluses. Both will continue to register surpluses but less than those of 2008. The Libyan banks did not borrow from abroad and as such the banking sector is unaffected by the crisis. The Libyan banks have a significant amount of liquidity invested in Central Bank of Libya CDs which amounted to Ld25bn [$20.3bn] at end June 2009.

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Read more about:  Analysis & opinion , Interviews , Africa , Libya