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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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