Libyan government faces forced currency devaluation | Libya


Libya’s near-bankrupt government faces threat of forced devaluation of the country’s currency and end of fuel subsidies, which could spark popular anger and the fall of the shaky administration supported by the UN in Tripoli.

The credibility of Fayez al-Serraj’s government of national unity (GNA) is crumbling despite the support of the United States, France, Italy and the United Kingdom, and its leaders have failed to unite the country.

Over the weekend, the Libyan dinar collapsed 7% against the US dollar and traded at six to the dollar for the first time on the black market. The official rate is 1.4 dinars to the dollar (1.74 to the pound).

Western leaders and financial institutions, including the World Bank, intervened directly in Libya’s economic decision-making this month, bringing politicians and technocrats to meetings in Europe to strike a deal.

Following meetings in Rome and London, it was agreed that a Libyan economic plan for 2017 would be released by December 1. It should include as yet unspecified measures on currency and the lifting of fuel subsidies.

Serraj tried to oust central bank governor Saddek al-Kabir, who resisted Serraj’s demands to release funds to help finance his government and public services. The Tripoli-based central bank mocked Serraj for having no policies to fix the economy and defended his duty to protect the currency.

Kabir calls for the restoration of production and exports of oil, the source of 95% of government revenue.

Western pressure forced the central bank to release $ 6 billion (£ 4.9 billion) to the government to pay salaries and finance electricity credits and the national oil company. An organizational chart has been agreed outlining the steps the government must take to receive funds and where they will be spent.

Queues at banks, lack of medical supplies and blackouts have become daily features of life in Libya. Three years ago, foreign exchange reserves were over $ 100 billion, but they are expected to reach $ 43 billion by the end of this year.

Oil production has shot up to 600,000 barrels per day, but the ongoing civil war and competition to control pipelines, production facilities and terminals mean plans to increase production to 1.1 million barrels next year are fragile.

Smoke rises from the al-Sidra oil terminal on Libya’s northern coast following a rebel attack in January. Photograph: AFP / Getty Images

Libya’s cumulative GDP losses since 2011 are estimated at over $ 200 billion, arguably the country hardest hit by political upheaval caused by the Arab Spring.

Serraj said that a devaluation of the dinar is inevitable and argued that it is necessary to reduce the deficit, increase the value of oil reserves and ensure a much needed flow of funds into the banks.

He understands, however, that the measure would be unpopular because it would increase the cost of imports and he might not have the political capital to impose it.

Following his arrival in Tripoli in March 2016, Serraj’s authority, never strong outside the capital, waned.

“Trying to run the economy more smoothly is an absolute requirement in terms of the credibility of this government,” said a Western diplomat who has worked for months to persuade Libya’s House of Representatives to endorse the leadership team by Serraj.

Powerful factions in the east of the country, led by Egyptian-backed general Khalifa Haftar, commander of the so-called Libyan National Army, have resisted working with the Serraj government. He has taken control of the Libyan oil crescent and driven Islamists out of Benghazi, suggesting that his claim to be a major player is strengthening.

The UK remains committed to Serraj. “He is a good man who tries to do a very difficult job,” said a UK source. “He is an architect immersed in one of the most difficult political jobs in the world.

“A fundamental obstacle in Libya is that there is very little sense of national identity. The concept of negotiation and compromise for the greater good of the country is not something that comes naturally to people. The majority of Libyans want the GNA to work.

The source said the state of the Libyan economy and the political stalemate are mutually reinforcing.

Kabir, a classic central bank governor, is reluctant to release funds for the government due to his lack of an economic plan. Until last week, there was no Minister of Finance.

Since the elected parliament also refused to approve the government, the central bank argued that it would be technically illegal under Libyan law to provide it with funds.

The infighting has direct implications for the West. An estimated 4,600 refugees have died this year trying to reach Europe through the Mediterranean. More than 340 died last week when boats capsized after leaving Libya. The EU mission in Libya, EUBAM, did not have access to Libyan coastal waters and instead forms a coast guard.

Western diplomats say tens of thousands of refugees are being held in both government and smuggling camps, largely in desperate conditions that diplomats have little access to.

The Islamic State fighters have largely been driven out of the coastal city of Sirte, but Western sources say the complete lack of Libyan intelligence means no one has a clear idea of ​​their current plight.


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