Libya was traditionally an agricultural nation, although farming was limited primarily to the coastal regions. farm animal raising was also valuable. The find of petroleum in the late 1950s effected a profound change in the economy: The gross domestic product increased from $1.5 billion in 1965 to $25.4 billion in 1985, and between 1965 and 1980 the economy grew at an annual average of 4.2 %. Declining petroleum revenues in the 1980s forced cutbacks in development programs, and per capita income declined by at least 25 %, although gross domestic income was on the rise again in the 1990s. The around annual budget in the early 1990s included current revenues of $6.9 billion and current and capital expenditures of $8.6 billion.

Oil revenues are Libya's main source of income. During the 1980s, oil accounted for two-thirds of the national income and nearly 99 % of export earnings, although it employed less than 10 % of the labour force. The government exerts strong control over the economy. The petroleum industry was nationalized in the 1970s; state trade unions and industrial organizations run most other industries and utilities. To reduce the nation's heavy dependence on oil, economic policy has emphasized agricultural and industrial development. Declining oil revenues during the 1980s, led to frequent revisions and delays in planned developments. In 1988, domestic reforms liberalized economic policy and promoted private enterprise.

The socialist-oriented economy depends primarily upon revenues from the oil sector, which contributes practically all export earnings and about one-quarter of GDP. These oil revenues and a small population give Libya one of the highest per capita GDPs in Africa, but little of this income flows down to the lower orders of society. In this statist society, import restrictions and inefficient resource allocations have led to timeic shortages of basic goods and foodstuffs. The nonoil manufacturing and construction sectors, which account for about 20% of GDP, have expanded from processing mostly agricultural products to include the production of petrochemicals, iron, steel, and aluminum. Climatic conditions and poor soils severely limit agricultural output, and Libya imports about 75% of its food requirements. Higher oil prices in 1999 and 2000 led to an increase in export revenues, which improved macroeconomic balances and helped to stimulate the economy. Following the suspension of UN sanctions in 1999, Libya has been trying to increase its attractiveness to foreign investors, and several foreign companies have visited in search of contracts.