Hydrocarbons account for more 60 percent of the North African country's gross domestic product
Though its economy is recovering rapidly, Libya's dependence on hydrocarbons leaves the country vulnerable to the volatility of price fluctuations in the oil market, the International Monetary Fund (IMF) said.
"While economic activity is recovering rapidly, the high degree of dependency on volatile hydrocarbon earnings makes economic performance vulnerable to oil shocks and complicates macroeconomic management," the Washington-based organisation said.
Hydrocarbons account for more 60 percent of the North African country's gross domestic product and 95 percent of revenue.
"Although Libya can afford elevated levels of current expenditures in a transitional period, the high level of wages and subsidies, and a weak governance framework, may lead to an 'entitlement mentality' and undermine the prospects for fiscal sustainability and intergenerational equity," the IMF said.
The political transition, the restoration of stability and security situation, and fiscal consolidation are key challenges the government needs to address in the short term, it said. Authorities need to tackle institutional capacity building, improving the quality of education, rebuilding infrastructure, putting in place an efficient social safety net, financial market development, and reducing hydrocarbon dependency in the medium term.
Libya's economy is forecast to expand by about 16.7 percent this year after surging 121.9 percent in 2012. The North African country's economy contracted about 60 percent in 2011.