The full text of the correspondence with the Governor of the Central Bank of Libya in response to the statements of the Prime Minister of the National Unity Government

Below is the full text of the letter from the Governor of the Central Bank of Libya, Al-Siddiq Al-Kabir, to the Prime Minister of the National Unity Government, Abdul Hamid Al-Dabaiba.

Text:
Respected Mr. Prime Minister of the National Unity Government, best regards, 0…

Your speech was included in the celebration of the anniversary of the February 5 Revolution on Saturday, 02/17/2024. Points related to financial conditions, the exchange rate, and salary increases. These are sensitive points. Whereas the Central Bank of Libya is the economic advisor to the state in accordance with the legislation in force. It has become obligatory for us to extend your kind attention to the following:

First: We do not disagree with you that Libyans have the right to live a decent life and to receive salaries that guarantee a decent living, but this is not achieved by good management of financial resources, while ensuring the sustainability of that decent life.

Second: It is no secret to you that oil is the only source of income for the Libyan state, which finances the general budget by more than 95%.

Third: You referred to the desire for the price of the dollar to be 1.3 dinars to the dollar, but the desire alone is not enough to achieve this, as the actual practices of successive governments were the opposite of that, with the ill-considered expansion in public spending over the past years, especially consumer spending, which accounts for more than 95%. Of public spending, salaries alone constitute 60% of public spending, as the salaries item jumped from 33 billion dinars in 2021 to 65 billion dinars in 2023, and the support item rose from 20.8 billion in 2021, including fuel subsidies, to 61 billion during the year 2022, and we expect it to exceed 61 billion dinars. In the year 2023, including 41 billion dinars to support fuel, which has grown remarkably and annually depletes approximately
8.5 billion dollars, not to mention the other support expenses directed directly to the electricity sector, amounting to 40 billion dinars, bringing the total direct and indirect support expenses to 102 billion dinars annually. Here we wonder how Chapter Four expenses jumped from 20.8 billion dinars, including fuel subsidies in 2021, to 61 billion. dinar in 2022. This confirms the existence of a defect, distortion, and mismanagement in fuel subsidies.

From 2021 until the end of 2023, the state spent approximately 420 billion dinars, most of which was directed to consumer expenditures at the expense of financial spending, and generated pressure on the exchange rate of the Libyan dinar.

Fourth: In your speech, you referred to increasing salaries and providing more grants, as the expansion of spending may satisfy some groups in the short term, but it contradicts the principles of financial sustainability and ensuring the rights of future generations, which is what the rational management of public funds requires. Our question is from where the government will provide financing for this. The increases, especially in light of the decline in the volume of expected revenues for the year 2024, to the level of 115 billion dinars, according to National Oil Corporation estimates. And another 5 billion dinars in sovereign revenues, with a total of 120 billion dinars. Continuing with the same financial policies will make the matter more complicated and result in a certain deficit. This requires working together to take policies to avoid deficit financing.

Fifth: The expansion of parallel spending of unknown origin, which directly affected the increase in demand for foreign exchange in the last months of 2023, resulting in an increase in the parallel exchange rate despite the pumping of $5 billion more than in 2022.

Sixth: The move from the exchange rate of 1.3 dinars per dollar to 4.85 dinars per dollar was not a choice for the Central Bank, but rather was the result of successive crises since 2013, due to the arbitrary closure of oil, which caused the Libyan state a loss of about 150 billion dollars, accompanied by a defect in financial and trade policies, a state of seasonal and seasonal division, and growing The pace of public spending and the adoption of a deficit financing policy led to an increase in public debt and an exacerbation of the deficit in the balance of payments, which depleted a large portion of the state’s foreign exchange reserves. There was no option to create balance and preserve what remained of the first line of defense foreign exchange reserves except by reducing the value of the Libyan dinar. In front of foreign currencies, this step achieved its goals and brought about clear stability during the years 2021 and 2022 at the macroeconomic level, balance in the general budget and balance of payments, and stability in the exchange rate of the Libyan dinar. However, the government continues to increase the level of public spending.
Noticeably, reaching the level of 165 billion dinars in 2023 and the presence of parallel spending from unknown sources, all of this contributed to the increase in the volume of demand for foreign exchange despite the Central Bank increasing the volume of supply of foreign exchange by 5 billion dollars compared to the year 2022, which reached 16 billion dollars, accompanied by stability in demand and price. Parallel exchange compared to $21 billion during the year 2023 was accompanied by an increase in demand and an increase in the exchange rate since the fourth quarter of the year 2023, noting that the increase in demand for foreign exchange began in the last quarter of the year 2023, which made the task of the Central Bank difficult to defend the current exchange rate. 4.85 dinars to the dollar, so how can the exchange rate be 1.3 dinars to the dollar, according to your statement, in light of these data, the most important of which is the volume of public and parallel spending, and the volume of the money supply, which reached 160 billion dinars, except by depleting the Central Bank’s reserves and resorting to borrowing from international institutions, which is not an easy matter, and it harms those State sovereignty and stability.

Seventh: The Central Bank of Libya, based on its national duty and responsibility before the nation and the citizen, will work to preserve the financial sustainability of the state in every possible way, whether individually or in cooperation with the rest of the state institutions, and we call on everyone to work together and approve the economic and financial policies necessary to get out of this stifling crisis. . and that is through :
1) Stop parallel spending from unknown sources, and approve a unified budget for the entire Libyan territory.
2) Rationalizing spending in a way that preserves the state’s reserves and the rights of future generations.
3) Diversifying sources of income, enhancing the role of the private sector, and reducing dependence on foreign imports of consumer goods, which has exceeded 80%.
4) In the short and medium term, increasing oil production and export.
5) The priority of spending should be to invest in comprehensive development.

In conclusion, these fundamental facts must be stated, as a matter of bearing historical responsibility and fulfilling the trust. It is necessary
Working hard to get out of the crisis and achieve the decent and sustainable living that we all aspire to.