The Impact of Monetary and Fiscal Policy on the Diversification of Non-Oil Exports in Libya: An Econometric Study from 1990 to 2023

Abstract

Monetary and fiscal policy are used to achieve many goals, perhaps the most important of which is achieving economic stability. Achieving economic diversification is considered one of the important strategic goals of these economic policies. Therefore, this study aims to identify monetary and fiscal policies in diversifying non-oil exports in Libya during the period (1990-2023). The study relied on the standard analytical approach to measure the short- and long-term equilibrium relationship between monetary policy (bank credit, money supply, and exchange rate) and fiscal policy (the ratio of investment spending to total investment) and diversifying non-oil exports, relying on the autoregressive distributed lag (ARDL) model and using the E-Views 12 program. The results showed the limited effectiveness of these policies in supporting diversification of non-oil exports, as the relationship between bank credit and diversification of non-oil exports was negative and insignificant, and the exchange rate was associated with a statistically significant inverse relationship, while the relationship with money supply was positive and insignificant. It also became clear that investment spending as a percentage of total spending was inversely and insignificantly related to diversification of non-oil exports. The study concluded that one of the most significant obstacles to diversifying non-oil exports is the lack of coordination between monetary and fiscal policy instruments and their failure to direct them toward export-oriented productive sectors. It recommends the development of an integrated strategy that strengthens the role of the central bank, adopts flexible exchange rate policies, and directs financing and investments toward non-oil sectors to support sustainable growth.