Implementing the dollar tax confuses the markets in Libya

Al-Arabi Al-Jadeed – Ahmed Al-Khamisi
A state of controversy sparked by the Central Bank of Libya’s announcement of the implementation of a tax on foreign exchange sales, which cast new repercussions on the dollar crisis in light of the complexities of the political scene that is stagnant in the country.

The director of the Oya Center for Economic Studies (independent), Ahmed Abulasin, said in statements to Al-Araby Al-Jadeed that the Central Bank reduced the exchange rate by 70% three years ago, and now imposed a tax on the dollar at 27%, which affects the livelihood of individuals in light of… Lack of adequate social protection programmes.

Apollosin pointed out the necessity of developing an economic reform program that contributes to the stability of the dinar in harmony between trade, financial and monetary policies while not expanding financial spending.

The professor of economics at Libyan universities, Muhammad Mayouf, doubted the feasibility of imposing a tax on foreign exchange sales. He told Al-Arabi Al-Jadeed: The tax is paid from people’s pockets, and the demand for foreign exchange will increase.

He called for the need to stabilize the exchange rate through a number of measures, the first of which is monetary stability and then price stability.

Banking analyst Moataz Huwaidi confirmed that imposing a tax on the dollar price will affect new investments in the market, explaining that contracts need to be amended.

During his talk to Al-Arabi Al-Jadeed, Huwaidi pointed out that there is currently no sale of stocks and bonds to move the economy through the stock market, stressing that the dollar tax will confuse the economy with the revaluation of the assets of banks and companies, and the change in financial obligations in the contracts of oil companies and others.

Financial analyst Mahmoud Salem explained that the main problem is the size of the monetary supply in the economy, which amounts to 165 billion dinars, calling for the need to limit it in the market in order for the dinar to stabilize and not impose fees on the exchange rate.

Salem added, in his interview with Al-Arabi Al-Jadeed, that 70% of the monetary supply is transformed into demand for the dollar, which causes the exchange rate to rise. He called for reducing the salaries item by 15%, reducing public spending, and approving an austerity budget. He said that the exchange rate was used as a means of performance. To finance the general budget in the absence of effective monetary policy tools.

The new exchange rate exacerbated the difficulties for the middle and poor classes in light of the minimum wage estimated at 900 dinars, equivalent to 185 dollars.

Banking analyst Moataz Huwaidi confirmed that imposing a tax on the price of the dollar will affect new investments in the market.

The Central Bank estimated the Libyan economy’s foreign exchange needs during the year 2024 at approximately $36 billion, including exceptional budget allocations to the Oil Corporation, the Electricity Company, and other development projects.

He said that the expected deficit in foreign exchange revenues is estimated at $11 billion, and the expected oil revenues are $25 billion, including $8.5 billion in fuel swaps.

He also called on the Central Bank to develop a comprehensive economic vision to diversify sources of income, enhance the role of the private sector, and reduce dependence on imports, as the country imports most of its needs from abroad.

Through decades, Libya relies on a main source of income, which is oil and gas, which constitutes 96% of total exports and finances 95% of the state budget, according to official data.

Speaker of the House of Representatives, Aguila Saleh, had reduced the value of the Libyan dinar by imposing a 27% tax on foreign currency purchases, in a move he said would only continue until the end of the year. The new tax effectively weakens the local currency exchange rate from 4.8 Libyan dinars to the dollar to between 5.95 and 6.15 dinars to the dollar.

The Supreme Council of State rejected the procedures for imposing fees on the selling price of foreign currency, and the Speaker of the House of Representatives and the Governor of the Central Bank of Libya called for the necessity of abolishing these procedures, and addressing the basis of the problem with sound professional and scientific standards, and within the framework of the law and the limits of jurisdiction.