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WEEKLY NEWSLETTER
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Libya
Index
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
home countries.
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 exporters.
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 been prohibited.
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
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