A dispute between the Central Bank and the Dabaiba government is collapsing the Libyan economy

The dispute between the Prime Minister of the Libyan Unity Government, Abdul Hamid Al-Dabaiba, and the Governor of the Central Bank, Al-Siddiq Al-Kabir, left negative effects beyond all that were expected on the fragile Libyan economy and its currency, which has oscillated between a sudden rise and a sharp and shocking fall over the past months, in which it is no longer linked to market fluctuations, but rather to the fluctuation of relations between heads. The big ones are at the top of the political and economic scene and their intense conflicts.

With frequent news about the crisis between the two men reaching a dead end, according to all sources close to them, against the backdrop of Al-Kabir’s coup against Dabaiba and his refusal to finance his government’s budget for the new year, with the exception of specific items, most notably the general salaries item, the value of the local currency fell to record levels, as it exceeded The price of the dollar against the Libyan dinar reached 7.7 dinars per dollar, for the first time in several years.

A crisis in a difficult time

This record decline in the value of the Libyan dinar came at a very critical time for the country, as citizens are approaching the month of Ramadan, during which Libyans are already accustomed to high prices for all goods, as happened in previous years, which is likely to be doubled this year with the rise in the value of the hard currency that… It imports basic goods from abroad.

The parallel or “black” market closed its trading this evening, Saturday, at a price of 7.70 dinars per dollar, while the euro exchange rate exceeded 8 dinars to reach the level of 8.05 dinars.

The average official exchange rate for the dollar stabilized at 4.85 dinars, according to the table of exchange rates announced by the Central Bank of Libya. The bank’s board of directors approved in August 2020 unifying the exchange rate of the Libyan dinar so that its price against the Special Drawing Rights became 0.1555, equivalent to 4.48 dinars. against the dollar, but this remained linked to the price of the dollar in international markets, and it has fluctuated since then between its price set by the central bank and the 5 dinar barrier. This is also the first time that the dollar has exceeded the barrier of 7.7 dinars since the previous Government of National Accord approved economic reform measures in 2018. From that date until September 2023, the price of the dollar remained stable, and the cash liquidity crisis and long queues at bank windows partially eased. Before news emerged of the dispute between Dabaiba and Al-Siddiq Al-Kabir, who have controlled the economic and financial scene in recent years.

Spending expansion

Political analyst Ahmed Bouarqoub, for his part, believed that the Dabaiba government was responsible for the deterioration of the value of the currency due to the expansion of its financial spending levels in the last two years, which forced the Central Bank to intervene in order to stop this cash drain, especially after the increase in the budget deficit.

Bouarqoub said, “The dispute between Prime Minister Abdul Hamid Dabaiba and the Governor of the Central Bank of Libya, Al-Siddiq Al-Kabir, broke out due to the expansion of government spending by the unity government,” adding that “it is known in the state of the Libyan economy that the expansion of government spending to the point of causing an increase in the budget deficit leads to To the increase in demand for foreign currency, and then inflation in the local currency. This explains some rumors that the Central Bank of Libya is moving to raise the dollar exchange rate to 6.5 Libyan dinars instead of 4.8 in official trading.” Bouarqoub also revealed that “the one who announced this news was a member of the House of Representatives, Abdel Moneim Balkour,” indicating that the great friend was the one who informed them of this possibility. Therefore, even if the Central Bank of Libya issued a statement denying this information, it remains that whoever leaked this information is a member of Parliament holds an official status in the state and is the main source of news in Libya.”

For these aforementioned reasons, Bouarqoub believes that “the governor of the Central Bank, Al-Siddiq Al-Kabir, wants to reduce government spending in order to maintain the exchange rate that exists at the present time, so that the issue of spending does not harm the rest of the other sections of the Libyan state budget, especially the salaries and miscellaneous items.”

“Central” procedures

On the other hand, Professor at the University of Misrata, Muhammad al-Senussi, holds the Central Bank and its governor, Al-Siddiq al-Kabir, responsible for the collapse of the value of the Libyan dinar against international currencies, stressing that “there are many reasons for the decline of the Libyan currency, the first of which is the Central Bank’s closure of the system for selling foreign currency to citizens for more than a month and a half.” When the sale of foreign currency resumed, the supply of it was reduced by placing more complications on the sale of foreign currency, whether for credit or for personal purposes, while reducing the share of the latter from 10 to only 4 thousand dollars per year, in addition to the very great difficulties that citizens faced in obtaining this. The value is due to system problems that we do not know whether they are intentional or not.” He added, “With regard to credits for merchants, the Central Bank continues to reject many of them for flimsy reasons, and the credits system was opened only four days a week for only two hours each day.”

New security concerns

Al-Senussi also considered that among the reasons that caused the exchange rate crisis were the security concerns that the country is currently experiencing. “The large military buildup that is currently taking place in Sirte has ignited fears of the outbreak of a new war, with new rumors about possible oil closures, which makes the market now expect a repeat of What happened in 2015, 2016 and 2017, but in a worse way, because the official price at that time was 1.5 dinars to the dollar, and the exchange rate of the dollar on the black market at that time reached 10 dinars in cash and 14 dinars in check, and now the official price is 4.80 dinars to the dollar, and I leave you to guess how much it will reach. The dollar on the black market.” He continued, “We must not forget the problem of the large increase in public spending, which will create a greater demand for hard currency, and an increase in the money supply, according to what was stated in the latest economic bulletin published by the Central Bank. I also expect that the Central Bank will take either the same path that it followed in past years.” The dollar in the parallel market becomes 15 dinars because the official price is only obtained by a very few merchants, or to take the other path, which is to adjust the official exchange rate to a higher price, perhaps 6.5 dinars, or to force the government to lift the subsidy, and this, if it happens, will mean… A new revolution is occurring in Libya, the results of which no one knows.”