Last week the IMF released a series of updated forecasts for Libya’s macroeconomic performance and state finances. In the absence of any detailed projections from the interim Libyan government, the figures provide one of the few reference points for the country's broad financial and economic outlook in the years ahead.

While predicting very rapid GDP growth in the short-term, the IMF raises noteworthy concerns about the sustainability of government spending.

The fund reckons that Libya ran a budget deficit of 27% of GDP in 2011 as oil output - which provides virtually all government revenue - plummeted during the conflict.

This year it projects a budget surplus of 14.2% as crude production returns to pre-war levels and the Libyan government has not been in a position to spend much money on major investment projects. “In 2012, capital spending will remain constrained by limited execution capacity,” said the fund.

The report has also assumed that Libya will be able to boost its oil output gradually over the next few years. Current production, according to the state-run National Oil Corporation (NOC), is about 1.6m barrels per day (bpd), but the IMF projects that this will increase to 1.7m in 2013, 1.87m in 2014 and 1.95m in 2015.

Yet despite this projected growth, which assumes both no major disruption to oil and gas infrastructure and a successful programme to increase production, the fund estimates that from 2015 onwards the government will be spending more than it earns, forcing up the break-even oil price:

"An analysis of spending trends under the assumption of unchanged policies indicates that the budget balance will be in deficit from 2015. Similarly, the oil price at which the budget is balanced has increased from $58 per barrel in 2010 to $91 per barrel in 2012 and is poised to exceed $100 per barrel from 2013.

A more thorough analysis of sustainability based on the present value of financial assets and future oil extraction indicates that, from 2012, public spending will exceed the sustainable, long-term level by over 10 percent of GDP."

A key factor in these unsustainably high levels of government spending, according to the IMF, is the amount of money allocated to wages and subsidies, which the fund expects to be equivalent to 30% of GDP in 2012. It said:

"Although Libya can afford elevated levels of current expenditures in a transitional period, the increase in wages and subsidies is eroding fiscal buffers and undermining prospects for fiscal sustainability."

The report recommends reforming the public-sector wage and employment structure, and streamlining the subsidies system to target state support directly at low-income consumers:

"The government needs to resist the temptation to create civil service jobs solely for the purpose of providing income to the unemployed. Public-sector wages should not be at a level that reduces incentives for individuals to seek employment in the private sector as this would undermine efforts to advance economic diversification. In this connection, the recent surge in the public sector payroll to 1.5 million (80 percent of the labor force) will need to be unwound.

Expenditure on subsidies and transfers is projected to increase to 13.3 percent of GDP in 2012 and remain elevated over the foreseeable future. The high level of subsidies motivates smuggling and corruption while affecting consumption and production patterns as well as the allocation of resources, with negative implications for the government budget, expenditure composition, and private-sector development.

Since universal price subsidies—particularly on fuel—disproportionately benefit higher-income households, replacing them with targeted forms of social protection would reduce economic inefficiencies and better protect vulnerable groups."

Reforming the cumbersome and inefficient state apparatus inherited from the Gaddafi era will be a sensitive affair, as will unwinding some of the measures taken by the previous government in early 2011 - which included substantial increases in public-sector salaries.

These issues were not at the forefront in the recent General National Congress (GNC) elections. But after a new government is created and focus gradually shifts onto economic policy, we can expect greater political debate about the role of the public-sector in the Libyan economy.

Meaningful change to prepare government finances for the longer-term is likely to require public-sector job losses and lower state subsidies on foodstuffs or fuel, even taking into account increased oil production, but any new government will need to balance this against the need to maintain stability – and to win votes.

Read the IMF report