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Libya
Budget, Expenditures, and Revenues
The first budget surplus in Libya's history occurred in 1966
when oil revenues began to increase spectacularly. Budget methodology
and fiscal policy under the monarchy in the 1960s had tended to
follow a 1959 World Bank (see Glossary) mission's recommendations,
as modified by the progressive influence of rising nationalism
and the unforeseen growth of the petroleum industry. Increased
integration of the provincial fiscal administrations with the
central administration was effectively achieved by the conversion
of the monarchy from a federal to a unitary form of government
in 1963. The assurance of large future oil revenues enabled the
government to introduce, also in 1963, a sizable development plan
and a corresponding administrative apparatus. The plan legislation
included a provision that not less than 70 percent of all future
petroleum revenues should be allocated to the financing of development.
During the monarchy, the government's budget was organized by
the Ministry of Finance, discussed and sanctioned by the parliament,
and signed into law by the king. It consisted of a current expenses
budget and (after 1962) a development expenditures budget. After
the June 1967 War, a supplement was added to finance enlarged
national defense outlays and annual subsidies to Egypt, Jordan,
and Syria.
Under the revolutionary government, the budget was divided into
an annual administrative expenses budget, an annual development
expenditures budget, and a special expenditures budget. Beginning
in 1982, the government also listed certain key imports under
a new commodity budget. Until 1974 the fiscal year (FY--see Glossary)
had begun in April, but since January 1974 the fiscal year has
been concurrent with the Gregorian calendar year. New procedures
for developing the budget were initiated in FY 1978. Initial proposals
for the administrative budget started at the municipal level;
the proposals were forwarded to an appropriate secretariat for
consolidation and subsequent submission to the Secretariat of
the Treasury, which reviewed and forwarded the proposals to the
General People's Congress (GPC--see Glossary) for final approval.
The development budget was prepared initially by the organizations
that would implement the specific project; the proposals were
then sent to the Secretariat of Planning for revisions and submission
to the GPC. The special expenditures and commodity budgets have
not been in the formal budget, but they have been approved during
the fiscal year by the GPC.
Special expenditures usually have included grants, loans, subsidies,
and the purchase of equipment for national defense. The total
generally has not been made available to the public because of
the defense-related expenditures, but some partial expenditures
for special items have been released on occasion. As much as 80
percent of the administrative budget has been spent by the central
government--the rest being divided between the municipalities
and public enterprises in years when they ran at a net loss. In
the mid-1980s, however, municipal allocations were increasing
at the expense of central governmental expenditures. In 1983 and
1984, central allocations under the administrative budget were
just under 50 percent of the total, whereas the municipalities
spent just over 50 percent. By 1985 the municipal share of the
total administrative budget allocations had risen to 71.5 percent,
whereas the central government took only the remaining 28.5 percent.
Before the 1969 revolution, the government spent more funds on
the administrative budget than on investments. Since 1969, however,
development expenditures have been much higher than administrative
expenditures because of the government's policy of using oil revenues
to build for the future. The development budget generally has
covered economic and social projects, but it also has included
working capital for public sector corporations and some lending
and operating expenditures. The annual development budget has
usually corresponded to a certain percentage of the total amount
projected to be spent by the current development plan. All budgets
have been amended frequently during the course of any year; the
amendments generally reflect increases for specific projects or
purposes or cover the increased costs of imported items for development
projects.
Planned expenditures under both the administrative and development
budgets increased rapidly during the 1970s. By FY 1980, the administrative
budget had increased by almost five times its level in FY 1974,
moving from LD192.9 million to LD950 million. The development
budget, over the same time period, increased its planned expenditures
by slightly less than a factor of four, from LD740 million to
LD2.53 billion. During the 1980s, growth leveled off. The administrative
budget increased by only 14 percent between FY 1981 and FY 1984,
and allocations to the development budget, which has always been
the largest component of total government spending, actually decreased
almost 30 percent. Data available for the commodity budget indicate
that LD1.56 billion and LD1.67 billion were spent in FY 1983 and
FY 1984, respectively.
By far the largest item in the FY 1984 administrative budget
was for defense spending, which accounted for 24 percent of the
total (see Defense Costs , ch. 5). The next largest item was for
education at only 6 percent of the total budget. Under the development
budget, the biggest items traditionally have been agriculture,
heavy industry, oil and gas extraction, and communications and
shipping. The relative levels of expenditures among these four
items usually depended on the guiding philosophy behind the particular
development plan in force when actual budget allocations were
made. Thus, in FY 1974 and 1975, heavy industry and oil extraction
received the most funding. From 1976 through 1979, the largest
percentages went to agriculture, including irrigation. During
the 1980s, heavy industry and, to an increasing extent since 1982,
communications and shipping occupied the leading positions in
the development budget. Since 1983 the commodity budget has mainly
been used to subsidize imports of basic foods, raw materials and
parts for light industries, and key engineering projects, principally
the GMMR (see Land Use and Irrigation , this ch.).
The government funded these budgets in a simple, if unusual,
manner. All nonpetroleum revenues were assigned to cover administrative
budget expenditures. Any gap between revenues and expenditures
was met by transferring some of the petroleum revenue, a practice
that ensured that the administrative budget was always in balance.
In FY 1984, for example, 20 percent of the administrative budget
was covered by oil revenues. After the administrative budget had
been balanced, the remaining oil revenue was used to fund the
development budget. In practice, this system meant that, while
allocations under the adminstrative budget were almost always
assured of being funded, expenditures under the development budget
could diverge greatly from planned levels depending upon variations
in oil revenues.
Although actual development budget expenditure data--as opposed
to allocation data--are hard to come by, Central Bank figures
for 1981 and 1982 indicated that the difference between planned
and actual expenditures under the development budget could be
quite large. For instance, in FY 1981 actual expenditures reached
96 percent of the planned levels, but in FY 1982 they only accounted
for 62 percent of the official target. Thus, allocation figures
for the development budget must be viewed with skepticism and,
despite their impressive theoretical allocations, various development
projects were often held up for lack of funds.
The petroleum industry, through payments of taxes, royalties,
profits, and fees, has accounted for as much as 80 percent of
the government's revenues. The NOC has also paid royalties and
taxes, and since 1974 its contributions have assumed greater importance
as its production and exports have increased (see Hydrocarbons
and Mining , this ch.). Royalties paid by the oil companies have
been based on volume of production and a posted price. Taxes have
been based on a theoretical profit determined by multiplying the
export volume by the posted price and subtracting royalty payments
and operating costs. The royalty and tax rates have periodically
been revised upward or downward depending upon the world market.
By law, 15 percent of the oil revenues must be set aside as reserves.
Nonpetroleum revenues have consisted of profits from other government
enterprises, import duties, income taxes, and miscellaneous taxes
and fees. In addition to the regular customs duties, two 5-percent
taxes have been levied on all imports, the funds being earmarked
specifically for municipalities and for charities. Direct taxes--mostly
income taxes--have brought in only about 5 percent of total revenue.
All income was taxed, the rate depending on the source. In the
late 1970s, there were separate taxes for income from rental property,
agricultural activities, commerce, industry, and trades. There
was also a professional income tax (the first year's earnings
of a career were tax exempt), a personal income tax, and a general
income tax, which was levied on all persons and companies and
included all income--even that subject to one of the special income
taxes. The general income tax was very progressive and was designed
to prevent capital accumulation. The tax brackets in effect in
late 1976, for example, worked out so that a taxpayer with total
income of LD192,000 would retain only LD72,000 and only 10 percent
of all additional income over the LD192,000 level. In 1987 Libya's
tax structure continued to be based on laws dating from the 1970s
or before.
The administration of the tax structure was altered with the
introduction of the Administrative Contracts Regulations in 1980
and Law No. 5 of 1981, which provided for some tax exemption for
foreign companies. Until 1981, all private companies were subject
to a company tax, with petroleum companies subject to a special
petroleum tax on their profits. Although in the past Libya had
not appeared to encourage new foreign investment, a number of
incentives in the form of tax exemptions were built into the 1981
law to encourage such investments.
Data as of 1987
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