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WEEKLY NEWSLETTER
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Libya
Index
The declining oil prices of the 1980s reversed the previous
decade's trend of sustained growth in national income. In real
terms, GDP grew every year from 1972 to 1980. Since 1980, however,
there has been a constant decline. A turning point for the economy
occurred in 1981, as real GDP dropped a staggering 18 percent.
Preliminary figures for 1984 estimated that, in constant 1980
terms, the GDP was LD7.5 billion, a level comparable to that of
1975-76. The rate of growth in real GDP has exhibited widespread
fluctuations since 1970. In two years during the mid-1970s (1974
and 1976), real GDP grew at an annual rate of over 18 percent.
Apart from these two dramatic years, real GDP grew at an
unspectacular average rate of 0.9 percent from 1970 to 1984.
Per capita changes in gross national product
(GNP--see Glossary)
have largely paralleled changes in GDP. In general,
however, GNP growth has not kept pace with population expansion,
resulting in an overall rate of growth in GNP per capita of -1.1
percent from 1965 to 1984. Nevertheless, in 1984 dollars, Libya's
GNP per capita was US$8,520--roughly equivalent to that of
Britain's GNP.
The breakdown of the GDP by contributing sectors changed
greatly in the 1960s as the oil wealth began to flow. Whereas in
the pre-petroleum period agriculture contributed between 25 and 30
percent of GDP, by 1962 it was down to 10 percent. In the same
year, only one year after Libya became a petroleum exporter, oil
exports accounted for over 23 percent of GDP.
By 1968 the contribution of petroleum products to GDP had risen
to about 60 percent. All other sectors except construction
decreased in relative terms between 1962 and 1968; agriculture
declined to 3 percent of the total and manufacturing to about 2
percent. In 1971 the contrast between the petroleum sector and the
rest of the economy had become even greater. Petroleum had come to
account for some 70 percent of GDP, construction 5 percent,
agriculture 2 percent, and manufacturing 1 percent. The rest of the
economy taken together apparently contributed only about 20 percent
of GDP. What these percentages reflected was not an absolute
decline in the nonpetroleum sector as a whole but rather the
extraordinary relative growth of the petroleum sector.
Between the late 1960s and the early 1980s, there were few
major changes in the composition of GDP. In most years, petroleum
products accounted for between 50 and 60 percent of GDP. Since
1982, however, declining oil revenues have reduced the petroleum
sector's share of GDP. Transportation and construction have
accounted for relatively large shares, which is not surprising
given the heavy investment effort in infrastructure. The
consistently low contributions of agriculture and industry to GDP
were disappointing, given the large amount of development spending
in those areas. About the only component of GDP to exhibit a steady
growth has been the public service sector, which rose from 5
percent in 1978 to 12 percent in 1984 . The burgeoning of the
public sector reflected the strong bias against private sector
growth that developed over this same period.
An income study of selected households in Tripoli and Benghazi
in the early 1970s indicated the existence of a large middle class.
Only 1.5 percent of households in Benghazi and 2.3 percent in
Tripoli had monthly incomes below LD25. About 7.2 and 5 percent,
respectively, of the households in these cities had monthly incomes
of over LD300; the vast majority--between 50 and 60 percent--had
monthly incomes between LD50 and LD100.
During the 1970s, the usual dichotomy between rural and urban
incomes was lessened in Libya. The fringe benefits and free social
services that the government brought to the rural areas helped to
increase disposable income. Many urban residents retained ties to
their families in rural areas and remitted part of their earnings.
Farm income generally rose because of increased demand for
agricultural products and because of improvements being made in
agriculture by the government. Agricultural wage rates were
relatively high, reflecting the shortage of labor. Wage rates paid
on state-owned farms were higher than on private farms; private
farmers tended to hire lower paid foreign agricultural workers,
mainly from Egypt.
Since 1978 salaries have been limited to an annual maximum of
LD10,000. The construction industry probably paid the highest wages
despite the popular conception that oil industry wages were the
highest. The oil industry, however, provided more job security.
The true effect on income of the radical measures put into
effect in 1978 remained unclear in early 1987. The resolution
outlawing rental income did increase the disposable incomes of
renters, who in 1978 comprised an estimated one-third of the
population. It also eliminated a major income source for landlords
and removed what had been the main area of private investment.
Although landlords were allowed to continue renting to those in
need of short-term accommodation, the 1978 policies severely
diminished the economic power of wealthy, large-scale, property
owners who had been a potent force in politics .
The effect of the law requiring worker participation in
management has been less clear cut. Whereas the 1973 profit-sharing
requirement probably increased worker incomes by requiring private
and public firms to distribute one-quarter of their profits to
workers, the 1978 extension may have hurt workers by undermining
the profitability of the enterprises in which they worked. Indeed,
many owners liquidated their businesses rather than face losing
control of them.
Overall, the generous public attempts to supply subsidized
social services, education, and medical care, when combined with
the more sporadic availability of subsidized basic consumer items,
have increased disposable incomes and caused a general rise in the
standard of living for most people when compared to pre-1969 Libya.
To a large extent, these policies depended on stable, plentiful,
oil revenues. The degree to which living standards and income
levels can be maintained, given the drop in oil revenues during the
1980s, was not clear in 1987. To a certain extent, at least in the
first few years of falling revenues, the government avoided cutting
back on consumption by making small cuts in development spending
and drawing down on its reserves. This latter policy was especially
dramatic, and Libya's total foreign-exchange reserve position
declined by 75 percent between 1980 and 1984.
Price information on Libya should be viewed with caution
because it rarely has been clear whether price indexes are based on
official controlled prices, which may or may not be effective at
different times, or on private, noncontrolled prices. Probably the
most accurate measure of inflation in the economy is the average
annual percentage change in the implicit GDP deflator. By this
measure, during the period 1965 to 1973, inflation progressed at a
rate of 9.4 percent a year. From 1973 to 1984, the rate increased
to 10.8 percent a year. Although these rates were slightly higher
than the average inflation rate of industrial market economies,
they were less than the average rate of other high-income, low
population oil exporters. Libya's rate of inflation from 1965 to
1984, therefore, was modest in comparison to the inflation rates of
some of its counterparts in the Persian Gulf.
Data as of 1987
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