libyan organization of policies & strategies...

Of Organization Libyan

Strategies & Policies

)LOOPS(

2014 Audit Bureau Report and

Rationalization of Public Spending

2015

املنــــظمة الليبية للســــياسات وإلاســـــتراتيجيات

Libyan Organization Of Policies & Strategies

1

Introduction

The Libyan Organization Of Policies & Strategies “LOOPS” has held a conference

on "2014 Audit Bureau Report and Rationalization of Public Spending” in 6 July

2015. In this event, three papers were presented.

The first paper was on the implications of salaries’ corruption and the duplicated

National Identification numbers. The second one was a review of the 2014Audit

Bureau Report. This paper also proposed procedures to solve the expected deficit of

this year’s public budget. The third paper was about the financial conditions in Libya

(2012-2014) and the expectations of 2015. The three papers presented new set of

financial policies to rationalize public spending.

In the opening of the conference, the president of LOOPS “Dr. Awad Ibrahim”

drew attention to the social and governmental responsibility towards the rationalization

of government spending. The Audit Bureau report reveals that there are 516 thousand

employees or workers who are getting undeserved salaries. Furthermore, according to

the report this exceeds 4 billion Libyan Dinars. This was a consequence of work

duplication and the provided salaries to persons under the age of employment.

The president of LOOPS mentioned the negative effect of the Audit Bureau report

in dealing with the issue of the official authorities of the government with all its

various benchmarks in the occurring political division between the House of

Representatives in Tobruk and the General National Congress in Tripoli, both with all

their institutions and structures.



2

Implications of Salaries Corruption and Duplication of National ID Number

In his presentation, Mr. "Essenusi Bsikri", the chairman of the Libyan Center for

Research and Development, considered that the connotations of salaries corruption as

well as the duplication of the National ID Numbers mentioned in the 2014 Audit

Bureau Report is considered as the first diagnosis and evaluation of the implemented

public policy. Moreover, it is the first deconstruction of the significant flaws in the

governance of State funds while considering that the Audit Bureau is the highest public

financial control system of the country.

The paper pointed out that the file of the Libyan employees’ salaries is one of the

greatest challenges which Libya is facing. This is mainly because it exploits 50% of the

country’s resources without receiving back any added value of the proceeds of labor.

This was an outcome of the big inflation which started in 2011 and lasted till 2014, a

period during which this inflation reached 80.8 billion Libyan Dinars whereas back in

2010 it did not exceed even 8 billion Libyan Dinars.

Through revising the salaries issued by the Central Bank of Libya in 2012, 2013 and

2014 after February revolution, it can be noticed that the rate of the spending on the

first item about salaries has increased to 65% which is 66 billion Libyan Dinars. The

reason behind this is that the successive governments have lost rationalized spending

policies through the system of National ID Number as well as the ability to impose

occupational skills and administrative discipline. This could be achieved through

activating the role of inspection departments and Administrative Control Authority.

The paper demonstrates that most of the governmental bodies do not disclose the

number of their employees who terminated their work with them. This leads to the

amplification of the employees’ number and also to continuously increase the

estimation of the budgets, required by these sectors, with a rate that varies from 5% to

20%. The pretext used for such acts is the “expected recruitments”. All these rates

accumulate every year. Furthermore, most of the official institutions exaggerate when

estimating the attachments of salaries such as subsistence and additional work

though they are not needed in most of the times. The rate of this exaggeration varies

from 5% to 30%.



3

The initial survey of the National ID Numbers of the government sector employees

has revealed that the rate of illegal salaries exceeds 30% of the current salaries. This

occurs through providing one employee with more than one salary from the same side

or from different sectors, in a rate that reaches 5.5%. This double-jobbing is covered

whether through fake National ID Numbers or by an abstinence to provide data,

sometimes with the aid of the employing side. The rate of this case reaches 26.9%.

Another defect is caused by some parts of the country through violating financial

law, integrating salaries with the general expenses in one bank account and spending

the excess liquidity of the salaries in special administrative expenses. Moreover, the

main defect is the increasing last years’ appointments without adhering to work

conditions. The appointments in health sector surpassed 107% without having a reason

for this need or a significant impact on the level of performance.

The paper resumed with a characterization of the amount of corruption in the

Ministry of Labor whose function is to organize the general framework of the country.

The paper points out the mismanagement and randomness occurring within the

ministry which does not exercise its role in supervising the appointments and the

contracts signed by officials for personal interests which is distant from the common

good of the country.

The paper concluded from the indicator of the corruption of 2014, where Libya was

ranked the sixth of the most corrupted countries, and from the indicator of good

governance issued by the World Bank that corruption is still continuing. And that its

transaction from the authority figures in the big contracts and investments to the public

and middle class in society, which is still practicing the same ways of the previous

regime, is still ongoing as well.



4

The Financial Situation from 2012 to 2014 and the Expectations of 2015

The second paper entitled “the Financial Situation of the Country from 2012 to

2014 and the Expectations of 2015” was presented by Dr. Azdein Ashour, deputy

director of the Research and Statistics department of the Central Bank of Libya. It shed

light on the economic situation of the abovementioned period and the expectations of

this year. The paper highlighted the security situation, considering it as a crucial point

affected by the ongoing conflict in various areas in Libya. A conflict which has

negatively influenced the economic growth and resulted in a noticeable decrease in

the production of oil that led to an unprecedented deficit in 2014 coinciding

with an international decline of oil prices and a local decline of revenue collection in

the country.

All the previous reasons obliged the Central Bank of Libya to agree with the

Ministry of Finance upon taking unconventional measures with the aim of reducing the

foreign exchange reserves. This was essential to secure the citizens’ daily living and

the necessary needs of goods. According to the paper, this means that in case the

deficit and the decline of the foreign exchange reserves continued, in the upcoming

two years, the country will not be able to provide imported goods and services.

The Growth Associated with the Oil Production Rates’ Ups and Downs

The paper has monitored the rate of growth in 2012 when oil production reached the

average rate of 106.5% and declined in 2013 to 30.8%. Then, in 2014 it recorded the

highest rate of 47.7%, where the average rate of the contribution of oil to the gross

domestic product became 61.3% during the period of 2012 to 2014. This assures that

the oil sector’s finance to the general budget of the country is increasing whereas the

economic diversification and the participation of other sectors in the Gross Domestic

Product (GDP) are decreasing.

The Libyan economy, the general budget finance and the rise and fall of foreign

exchange reserves are linked to the world oil prices which have known a sharp

deterioration from 2012 till 2014; a period during which the Brent crude price reached

the lowest rate of 46 dollars per barrel.

These three years represented a breakdown on the level of oil production rate and

the contribution of oil output in the GDP.



5

In 2012 the rate of the oil’s output has reached 72.8% of the GDP and declined to

63.3% in the following year. Then, the lowest rate 48.0% was recorded in 2014. The

non-oil output in 2012 reached 27.2% and in the subsequent year it raised to 36.7%.

Then, on 2014, it attained the percentage of 52.5%.

Foreign Reserves Between 2012 and 2014

Reserves of the Libyan country have decreased in the Central Bank of Libya in

2012 from 118.4 billion dollars to 112.8 billion dollars in 2013. In 2014, the rate of

decline reached 23.5% and registered 83.3 billion dollars. The reason behind this

decline is the decrease of oil production and exportation during the previous periods

which is resulted by the disorder of security that led to the shutting of Zueitina, Sidra

and Ras Lanuf ports in addition to Alfeel and Hammada oil fields.

General Financial Prospects of 2015

The paper admitted the difficulty of foreseeing production and oil revenues in the

upcoming period. However, it alluded to an estimation that is based on the expected

development of oil prices and the produced quantities. This will be based on the

improvements occurring in the region and their potential effects on oil prices, in

addition to the expectations of international organizations which expect the rise of oil

prices. Not to mention the expectations of oil production improvement through the

withdrawal of conflict parties from the Libyan ‘oil crescent’ region and announcing the

lifting of the force majeure state from the oil ports.

The paper provided an approximation of 19.6 billion dinars as the amount of oil and

non-oil revenues of 2015. The total expenditure of salaries, managerial and operating

expenses, projects and programs of development, support expenses and prices

adjustment have reached 43.2 billion dinars reflecting a deficit of 23.6%.



6

Cash Flow and Public Expenditure from 1st of January to the 1st of June 2015

First: Cash flow

Though the country did not depend on the budget of 2015, the Central Bank of

Libya has funded the public expenditure arranged with the Ministry of Finance.

The total amount of public revenue supplied to the Central Bank of Libya during the

abovementioned period is 9 billion and 672 million Libyan dinars. 4 billion and 776

million dinars and 700 thousand dinars are oil revenues which results in 49.9% of the

total revenues.

The value of sovereign resources was 4 billion, 895 million and 300 thousand

dinars, which is estimated to be 50.6%. Tax revenues value is 252 million and 800

thousand dinars. Besides, customs’ revenues equal 14 million and 100 thousands

dinars, in addition to the revenues of one year with a value of 4 billions, 628 million

and 400 thousand dinars including the amounts that remain with the banks from

previous years.

Second: Public Expenditure

The total amounts released for the different expenditures during the same period

mentioned above amounted to 11 billion 450 million and 900 thousand dinars,

including the expenditure for Chapter One related to salaries and payroll account

which is about 5 billions 903 million and 800 thousand dinars. This equals 51.6 % for

the salaries of January and February, in addition to a part of March and April’s salaries.

The sum of the Second Chapter which is related to management expenses amounted

to 847 million and 800 thousand dinars which equals a percentage of 7.4%, while the

expenditure of the third Chapter related to development projects and programs, the

expenses amounted to 1 billion 447 million and 700 thousands dinars which is

equivalent to 12.6%. As for the fourth Chapter which supports goods and services, the

financial value reached 3 billion, 251 million and 600 thousand dinars, equivalent

to 28.4%.



7

Deficit

During the first five months of 2015, the value of the achieved revenues was 9

billion, 450 million and 900 thousand dinars. This means that the value of the deficit

between the revenues and expenses reached one billion, 778 million and 900 thousand

dinars.

In the light of these numbers and the gap between the realized revenues and the

money spent during the first five months, one can conclude the critical financial

situation of Libya. This situation will become worse if there is no improvement in the

production conditions of oil and its prices in global markets. If the state does not

undertake urgent reforms concerning the chapter of the budget related to salaries and

support expenditure, the consequence will be a deficit in the overall budget. It will also

cause the current budget to disregard the expenditure for development which stimulates

the economic process and contributes to overcome the current crisis.

The general budgetary deficit cannot be made up unless balances are withdrawn

from the Libyan Investment Authority, or by resorting to loans from within or outside

the country. Both choices are difficult and could have dangerous consequences.

Practically, borrowing from local capital market is impossible due to the lack of a

system that administers the tools of public debt, such as issuing treasury bonds and

permissions. The difficulty in local borrowing is no less than that of borrowing from

abroad because of political instability and insecurity.

Suggested Actions to Balance the Budget of Year 2015

The third paper was presented by Dr. Mohamoed Fayad, Professor of Economics –

Faculty of Economics- in the University of Benghazi and General Director of

Economics Research Center. It was entitled “Reviews of 2014 Audit Bureau Report

and Proposed Actions to Balance the Expected Budget Deficit”. The document

contained suggestions and alternatives to tackle the public debt deficit based on the

assumption that Libya, during the current year, is facing a deficit in the public budget

of the country. This refers to a decline in the sovereign revenues, which constitutes

11% of the total revenues, in conjunction with the decline of oil revenues which

constitutes 48% of the total revenues, according to the 2014 budget. The present

financial crisis is mainly due to the internal political and security conditions, boosted



8

by international political and security problems, rather than the result of a stagnation

which may have resulted in a decrease of revenues in public expenditure that led to

inflation.

Given the fact that the decline of oil revenues is the main reason for the public

budget deficit, adopting a monetary and a public budget would be a wise choice to

efficiently manage public fund.

The Reality of Public Revenues during the Period from 2010 to 2014

In 2012, both oil and sovereign revenues reached 120% and 94% respectively

compared with their value in 2010 after they declined to 28.5% and 20.5% in 2011

compared to 2010. This suggests an improvement in economy and in government

performance in 2012. However, this recovery rapidly dropped, in 2013 and 2014,

respectively to 77% and 30% because of the deterioration of security and political

situation which coincided with a decline of the governmental performance in 2013 and

2014. Consequently, both oil and sovereign revenues dropped to 93% and 49%

respectively, compared with their value in 2012.

Public Expenditures in 2012 and 2014

Data confirms that public expenditures in 2013, in spite of the decline in public

revenues, were the highest in value compared to 2012 and 2014, either on the level of

the total amount of these public expenditures or, on the level of budget Chapters, “the

First, the Second and the Third”, which concern wages and salaries as well as

managerial expenditures and development expenditures. In 2013, the value of

expenditures of each Chapter reached the total value during the years 2012 – 2014,

39%, 46% and 58% respectively. All that while support and public debt expenditures

witnessed a decline as the value of both reached 29% and 45% concerning the total

value of expenditures of both respectively during the period from 2012 until 2014.

Methods of Balancing Budget Deficit for 2015

The third document suggested that the policy that must be adopted by the

government is “the financial policy” as it is the optimum for reinter economy. The use

of general budget tools, represented in revenues and public expenditures, is considered

to be the most important tool that can be used in such circumstances.



9

Public Expenditures

Public expenditures are considered to be among the most important tools that can be

used in managing public funds in order to guarantee a good use of it. Therefore,

managing public funds efficiently requires rebuilding the structure of public

expenditures, which in turns requires reordering the public expenditure’s priorities.

The rebuilding of this structure should take into account adopting the priority principle,

providing financial information and guaranteeing the realization of envisaged benefits

from public expenditure.

Correcting Imbalances Concerning Salaries in Chapter One

In order to correct imbalances in salaries, the paper proposed the following

measures;

Salaries of legislature, head and members of executive government, head of

the government, ministers and agents should be reconsidered.

Public sector’s payroll guided by the research on general function workers

prepared by Economic Research Center in 2010 should be reconsidered;

Salaries of the public sector’s institutions and companies such as the

National Oil Corporation (NOC) subsidiaries, the Libyan Investment

Authority, the Libyan Foreign Investment Company (LAFICO), the Central

Bank of Libya, and telecommunication companies should be reconsidered;

The necessity of using National ID Number in salaries exchange of public

sector workers, its institutions and economic and administrative units.

The absence of an administrative management guide, an administrative

structure and job requirements in many public sector institutions in the

legislative authority, in the government and in public sector companies and

boards is a source of administrative and fiscal corruption. This requires on



11

the medium-term (from one to two years) working on providing this

regulative guide to precisely identify the number of workers in the public

sector and identify the competencies. This will have a positive impact on the

level of transparency, impartiality and rationalization of spending.

The relevance of many embassies’ work as well as the number of workers

and closing all embassies which proved to be useless should be

reconsidered.

Oil revenues deficit is the direct cause of the expected public budget

misbalance for year 2015. This requires a reduction of expenditures paid

through foreign currency, therefore, reconsidering expenditure of diplomatic

missions especially salaries and management expenses are a key factor in

efficiently managing the public funds.

To correct budget unbalanced expenditure in Chapter Two concerning management

expenses which reached 7% of total public expenditure in 2014 , the presented paper

saw that it is necessary to follow a scientific mechanism to estimate the management

expenses consistent with every category of managerial costs. This will lead to improve

public money management. Concerning these expenses’ estimation, it can be noted that

they are usually randomly estimated and do not follow any scientific norm. The

estimations show that many expenses do not correspond to the work nature and the size

of the administrative unit.

As for addressing and rationalizing expenses of commodity support, the Audit

Bureau of Libya asserts that it suffers hugely from corruption. The share of

consumption expenditure on commodity and services support reached 29% of total

budget. To address this problem, commodity support is replaced by a monitory one

that is given to citizens by using the National ID Number as a distribution mechanism.



11

Public Revenues

According to general budget, the estimated oil revenues for year 2014 reached 26

billion and 700 million dinar, which almost represents 47 % of total estimated revenues

for the same year, and which is also the principal source of revenues of foreign

currency. The Audit Bureau ‘report indicated that the total oil revenues of year 2014

reached 19 billion and 977 million dinar, which represents 75 % of the total estimated

oil revenues .

The report noted that the degree of realization of estimated revenues in this source is

defined by external non-governmental powers. The reduction of oil prices and the

decrease of its exported amounts due to security conditions make it difficult to foresee

oil revenues value to be realized in the general budget for 2015.

Sovereign Revenues

It is assumed that sovereign revenues of an economy operating according to a

market goods and services production and distribution mechanism is one of the most

important sources of revenues. Though Libyan economy started to return back to the

market system as a mechanism of managing economy for almost three decades, it did

not have a good organization guaranteeing the efficient production and distribution

which the market system aims at realizing.

This led to the deformation of the Libyan economy with a private sector enjoying a

number of privileges and gains without contributing in an efficient way to the

development or support of the public budget through discharging its due liabilities.

This latter requires the interference of government in the economic activity to

guarantee the well-functioning of the market system, which will also require using

financial policy tools such as taxes for the purposes of helping the government

carrying out its functions and realizing its goals.

Tax Revenues

Libyan Audit Bureau estimated tax revenues for year 2014 of 900 million dinar,

equivalent to 15 % of estimated sovereign revenues, the value of the collected revenues

reached 660 million dinar, equivalent to 73 % of total estimated tax revenues of the

same year.



12

Reducing budget deficit through sovereign and tax revenues requires:

a- Linking the National ID Number with commercial and tax registries, civil service

administration and employment offices.

b- Linking subsidizing economic and social support, financial facilities, and bank

credit with the National ID Number and the tax registry.

c- Making private sector institutions liable to pay taxes for the minimal quota of their

workers. This number is defined according to the company’s size. Defining the size of

the company is based on its capital.

To attract recruitment in the private sector, it is suggested that income taxes of

workers in the private sectors should be more reduced than the ones of the

public sector.

Public Institutions and Companies’ Revenues

The Audit Bureau report for 2014 indicates that effective revenues from

telecommunication sector reached more than 410 million dinars. This represents more

than 167 % of estimated revenues from this sector, in addition to 26 % of total

effective sovereign revenues for year 2014.

The report also indicated that estimated revenues of the Libyan Central Bank profits

were not realized. If paid, they could have increased the effective revenues from

sovereign revenues to more than 67 % of total estimated revenues which could have

had a good impact on the executive government ability to face its obligations. The

report of the Audit Bureau also indicated that the reason the bank did not pay its dues

is related to the non-settlement of the loan given by the bank to the treasury.

To increase the public revenues from the revenue of public companies and

institutions, legislation should be enacted to encourage public sector companies and

institutions to transfer an agreed percentage of the surplus of their annual activity and

profits to the public treasury to support revenues and resolve public budget deficit.

Legislation obliging the Central Bank of Libya to pay its dues to the public treasury

should be enacted.



13

Commercial Policy

Being the second source of sovereign revenues, Customs dues are one of the

commercial policies the countries use for managing their economies. The report

indicates that the value of collected customs revenues reached only 59,5 million dinar,

which represents 8,5 % of estimated custom revenues and 4 % of total effective

sovereign revenues for year 2014 estimated by 700 million dinar. Given the Libyan

security and political conditions and the deficiency of the customs system, it is unlikely

that the customs revenues would contribute to the support of the public budget.

Therefore, legislation should be issued to abrogate all laws and decisions

concerning customs dues. Laws and decisions consistent with Libya’s desire to join

the World Trade Organization should be issued to regulate the collection of customs

duties (noting that Libya now enjoys a status of an observer in this organization).

Customs dues should be imposed on quantity instead of value, by categorizing imports

into commodity groups through imposing a fixed value on each commodity group.

This would guarantee the improvement of the imported commodities’ quality and the

ease of estimating and levying custom revenues taxes.

Monetary policies

In spite of the monetary policy‘s deficiency in the Libyan economy, using some of

monetary policy tools efficiently can help the government to function and achieve its

goals. Thus, the monetary authority can use politics’ tools by using one of the

important monetary tools: exchange rate which includes allocating resources, reducing

the inflation in addition to unemployment rates and realizing the desired economic

development.

It is also crucial to use exchange rate in the parallel market of commercial and bank

transfers which will lead to reduction of exchange rate in this market. This will boost

the purchasing power of the Libyan dinar. Finally, adopting cash and public budget in

managing foreign revenues could be a rational choice to efficiently manage public

funds.



14

Recommendations:

Political and institutional divisions should be terminated at the country level;

The wheel of Libyan economy should be rotated. Oil production should be

moved forward to get back to its normal level that was before the crisis.

Reforms on the level of supporting the system should be undertaken. Public

spending should be rationalized through activating the National ID Number. This in

order to reduce spending on wages and salaries and therefore rationalize spending in

other managerial Chapters;

Legal problems of workers’ salaries in public sector, which has an estimation of

4 billion and 272 million dinars, should be solved. Any kind of negligence in adopting

the policy of adjusting wages through the National ID Number system should be

prevented. Moreover, countering the phenomenon of double salaries should take

place;

Secondary and luxury exported goods should be rationalized and foreign trade

in general should be structured through increasing these goods’ customs tariffs;

Structural changes in the national economic structure should be made as well as

the contribution of the private sector in the economic life should be increased;

The recruitment system should be promoted and depoliticized and the civil

service should be rendered more professional;

Foreign employment should be structured in order to increase tax revenues;

With the collaboration of all the competent authorities, the needs of workers in

different vocations and specialties should be studies;

Spending in all budget Chapters should be rationalized.



15

ABOUT THE LIBYAN ORGANIZATION OF POLICIES&STRATEGIES

The Libyan Organization Of Policies & Strategies “LOOPS” is an independent,

nonprofit and nongovernmental research organization established in Tripoli,

Libya in December 2014. Also a new branch of LOOPS was opened in January

2015 in Istanbul, Turkey.

LOOPS provides high-quality analysis and recommendations on current and

emerging policy and strategy issues to promote the adoption of sound policies.

It also supports policy makers on dealing with current and impending policy

and strategy challenges. The organization is dedicated to improving the

performance of Libyan institutions and advancing the economic and social

welfare of the Libyan people. It also promotes the adoption of Governance,

Quality Assurance, Strategic Planning, and Excellence concepts to help

improve the performance of Libyan Institutions. Moreover, LOOPS enhances

and disseminate knowledge on public policy and strategy through the

publication of statistics, studies and periodical reports. It also promotes the

advancement of understanding through conferences, seminars, and workshops

which facilitate open debate.

Tripoli Office:

Zawiat Aldahmani, B.O.Box.3144

Tel: 00218 21 340 75 86

Fax: 00218 21 340 75 87

Tripoli, Libya

Istanbul Office:

Yenibosna Merkez MAH.29

Bahçelievler-Post code 34197

Istanbul vizyon park Ofis Plaz.A3 BLK-K:3/D28

Tel: 0090 212 603 25 92

Fax: 0090 212 603 27 48

Istanbul, Turkey

libyan organization of policies & strategies...

Documents