Clashes in Libya since war ended in 2011 have undermined the country's political reforms. Militant attacks and labor strikes have affected the country's post-war energy potential.
The IMF said that Libya's economy depends almost entirely on hydrocarbons for revenue and 60 percent of gross domestic product.
"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 assessment read.
The IMF said that Libya's economy moved from a budget deficit of 18.7 percent of GDP in 2011 to a surplus of 24 percent of GDP in 2012 as oil production recovered from war. Its economy, however, started to depend more on higher priced oil during recovery, the fund said.
"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 inter-generational equity," the assessment said.