Balance of Payments
The government's balance-of-payments statement, which has been
prepared annually by the Central Bank, has provided a shorthand
presentation of Libya's economic relations with the rest of the
world. Although balance-of-payments statements generally may be
arranged in different ways to meet different requirements, they
frequently have been presented in terms of a current account that
included the exchange of goods and services and transfers (donations);
a capital account that reflected movement of direct investment,
government borrowing and lending, and trade financing; and a reserves
account showing whether monetary institutions have on balance
acquired or paid out foreign currencies in the other accounts.
The Libyan payments balance has been presented according to that
formula (see table 8, Appendix).
The balance-of-payments statements issued between 1960 and 1977
spelled out in dramatic fashion Libya's meteoric transition from
poverty to wealth. In 1960 exports (mostly agricultural) reached
their then-customary total of less than the equivalent of US$10
million. Imports totaled US$177 million. The result was an unfavorable
trade balance, to which was added a negative balance on the service
account. The combination was barely offset by a large item for
oil company investment and by sizable grant aid from Britain,
the UN, the United States, and Italy. Capital movements were minimally
favorable on balance.
By 1963 the payments picture was already changing rapidly. Although
imports had increased appreciably, exports had outstripped them,
providing a solidly favorable trade balance for the first time
in the country's history. Government services and investment income
(mainly oil company profits) were approximately in balance, but
other services (mainly expenditures abroad by the oil companies
connected with their Libyan operations) were increasing rapidly,
and goods and services showed a small debit balance. This was
just about offset by transfers (gifts and contributions from abroad),
and the total current account was in balance. The capital account
showed a credit, and the exchange reserves rose by US$27 million.
The upward trend continued throughout the 1970s except for 1973,
1975, and 1978, when the overall balance of payments was in deficit.
The balance of payments has been heavily dependent on oil exports
and public sector imports, and in each of those three years increases
in imports relative to exports pushed the overall balance into
deficit. Nevertheless, Libya recorded its largest balance-of-
payments surplus in 1980, when it reported a net gain in foreign
reserves of over US$6.7 billion.
Since 1980, however, declining oil export revenues have pushed
the overall balance into a sustained deficit, as net changes in
reserves for 1981 through 1984 were all negative. In general,
Libya's trade balance has remained solidly positive because oil
revenues, even in the 1980s, have been sufficient to cover imports
of merchandise. The principal drain on Libya's balance of payments
and the source of much of its external payments difficulties during
the early and mid-1980s have been the large deficits Libya has
experienced in its trade in services. The major components of
this "invisible trade" were payments to foreign consultants and
contractors, as well as to the resident foreign workers in Libya,
who customarily remitted large portions of their salaries to their
In response to its deteriorating balance-of-payments situation
in the 1980s, Libya has used several strategies. Foremost has
been the drawing down on its substantial reserves of foreign exchange
built up during the 1970s. Thus, other than for gold reserves
(which have remained fairly stable), Libya's total foreign exchange
reserves (including Specail Drawing Rights (SDRs)--see Glossary,
and its deposits with the International Monetary Fund (IMF)--see
Glossary) declined from US$13.1 billion in 1980 to US$9 billion
in 1981, US$7 billion in 1982, US$5.2 billion in 1983, and US$3.6
billion in 1984. Despite this drastic decline, in 1984 Libya's
reserves still afforded it an estimated 5.3 months of import coverage,
a figure well above the average for comparable highincome oil
Libya has also taken steps to reduce remittances by foreign workers.
In the 1982-83 period, foreigners comprised about 47 percent of
total productive manpower. In 1984, however, the government reduced
from 90 to 75 percent the wages that foreign workers were permitted
to repatriate. This action, combined with the worsening economic
climate in Libya, sparked a flight of foreign workers. The total
number dropped from 560,000 in 1983 to perhaps 300,000 in mid-1984.
In 1985 the government resorted to coercion, forcibly expelling
many remaining workers. In August and September, more than 30,000
Tunisians and about 20,000 Egyptians were expelled. Smaller numbers
of workers from Mauritania, Mali, and Niger were also forced to
leave. By 1986 further expulsions had dropped the number of foreigners
working in Libya to fewer than 200,000.
The final method used by the government to reduce its service
trade deficit has been to delay payments to contractors and to
induce them to accept barter arrangements. By late 1986, Libya
had fallen more than US$2 billion behind in its payments to contractors.
In an effort to meet its obligations without disbursing its valuable
foreign exchange, Libya has encouraged its creditors to accept
oil rather than hard currency in return for their services. Although
many debts were settled this way from 1982 through 1985, the sharp
drop in oil prices in early 1986 ended such arrangements. At that
point, the Libyans refused to adjust their prices to world market
levels--resulting in a 30-percent overvaluation of their oil in
relation to its price on the open market.
Stringent exchange controls have been in effect since the 1969
coup d'état in an effort to stem capital outflows resulting from
private sector pessimism about investment opportunities in an
avowedly socialist-nationalist-revolutionary state. The exchange
controls were administered by the Central Bank. Since 1979 most
all imports have been under the control of sixty-two public corporations,
and import licenses no longer have been issued to private companies.
The only imports not directly under state control have been made
by contractors, but all imports from Israel and South Africa have
Since the 1969 coup, residents have been allowed specific amounts
of foreign exchange each year for personal commitments abroad
(excluding family remittances), foreign education, overseas travel
(pilgrims to Mecca were allowed an additional sum), and business
travel. In addition, the government specified that travel fares
must be paid in Libyan currency. Temporary residents could take
out no more foreign currency and travelers' checks than they had
declared to customs officials on their entry into the country.
For practical purposes, most gainfully employed nonresidents
were allowed to maintain nonresident accounts in local banks into
which could be deposited the compensation for their gainful employment
and interest accrued on such deposits. Withdrawals for remittance
abroad might be drawn against such deposits up to 75 percent of
net salary each month. Foreign contractors working in Libya under
their own names had to maintain "special resident accounts," into
which the funds with which they entered the country and the proceeds
of their professional activities in Libya had to be deposited
and against which withdrawals might be made with approval of the
Central Bank. Profits and dividends could be transferred freely.
Blocked accounts could be withdrawn for local or foreign use up
to limited amounts during the first five years' duration of such
account; after five years the deposit could be withdrawn in full.
Data as of 1987