Restoring oil and gas production in Libya is key to rebuilding the country and reviving the economy after an eight-month civil war, the International Monetary Fund said on Monday, while it warned the government's finances remained "precarious."

The IMF forecast that Libya's economic activity would recover in 2012 as more oil production comes on stream and the government's cash crunch eases.

In a report on the Libyan economy, the IMF said gross domestic product in 2011 contracted by a massive 60 per cent as crude output cratered to 22,000 barrels a day in July 2011 from 1.77 million barrels a day in 2010.

As of the end of November, around $3 billion in Libya's foreign assets were unfrozen and made available to Libya, the IMF said. The government is financing itself by borrowing from the central bank and printing money.

After the rebellion that broke out a year ago against Muammar Gaddafi, the UN froze Libyan assets abroad, estimated at $150 billion. Gaddafi's 42-year rule collapsed when his forces fled Tripoli. He was captured and killed by rebels in October.

"Restoration of hydrocarbon production is well advanced at over half of pre-revolution levels and remains critical to economic recovery, and reconstruction will boost non-hydrocarbon economic activity," the IMF said, following discussions with the authorities. Libya holds Africa's largest oil reserves.

Libya's National Oil Corporation said on Monday oil output had climbed to 1.3 million barrels a day.

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