Libyan currency drops precipitously as country suffers from insecurity and lack of revenues

(November 20) Yesterday the Libyan dinar fell more than seven percent against the US dollar. On the black market the Libyan dinar surpassed the six to one ratio for the time time, trading at 6.2 dinars to one U.S. dollar.

The Prime Minister of the UN-backed Government of National Accord (GNA), Faiez Serraj blamed the collapse of the dinar on Saddek Elkabir, governor of the Central Bank of LIbya(CBL). A spokesperson for the bank, Essam al-Oul, disputed the charge, claiming that the CBL had nothing to do with the decline: “What happened today is the logical result of different factors including the decrease in oil exports and international prices, the sharp political splits and civil war which has torn the country apart, the chaos from the absence of security, in addition to the freezing of the operations of some important government bodies such customs and anti-smuggling organizations”. Oil exports have actually been increasing not decreasing. Some of Serraj's difficulties surely stem from the CBL not providing sufficient funds for the GNA government.

The dinar's plunge on Friday came after it had closed at 5.82 to the dollar on Thursday. On Saturday, the price of a dollar rose quickly to 5.82 and then eventually surpassed the 6.0 mark. When the dinar rose above 5.0 in July this was then called a watershed moment. Some think that money dealers are actually manipulating the market. A gold market trader said that although prices cannot be predicted, that large traders worked with each other to influence the rate and were making a lot of money by doing so. At least one observer, Siraj Abunab of Tripoli claimed to the Libya Herald that there were foreign hands behind the fall who were seeking to fabricate a crisis in the country. The official rate is just 1.4 dinars to the U.S. dollar.

A meeting designed in part to support the dinar was held in Rome attended by the Presidency Council of the GNA, the Central Bank of Libya(CBL), the National Oil Corporation(NOC) as well as the Audit Bureau. The meeting was also attended by representatives of the UN, the World Bank, the International Monetary Fund (IMF) and a number of ambassadors from countries supporting the GNA. The meeting was chaired by Ahmed Maetig a PC deputy. The meeting agreed to press for increased oil production. It was agreed that the 2016-17 budget should make health care and education priorities for the 2016-17 budget. A clear timetable for implementation of economic decisions should be ready by the beginning of December.

A report in the Guardian notes that the economic proposals include an end to fuel subsidies a move that will make the Serraj government even more unpopular. Although a further consignment of cash arrived from the U.K. there were still shortages at many banks and long queues. The Libyan financial crisis is now being managed by foreigners through meetings first in London and now in Rome.

Serraj has been blocked from providing better services by the refusal of the CBL governor al-Kabir to release funds to him. Al-Kabir has accused Serraj of having no policy to fix the economy and claims to be defending the dinar. It is not clear how Al-Kabir can be defending the dinar when it is losing value continuously. Kabir argues the oil production and exports should be increased. However, most everyone would agree with that.

Western pressure finally forced the bank to release $6 billion to pay salaries. Just three years ago, Libya's foreign exchange reserves were at $100 billion but by the end of this year they are expected to be just $43 billion. The GNA has been hampered by its inability to come to an agreement with the rival House of Representatives (HoR) government in the east and the powerful commander of its armed forces Field Marshal Khalifa Haftar. The CBL argues that technically it would be illegal under Libyan law to provide the GNA with funds not approved by the HoR. This is ludicrous. There is no GNA legislature at present because the HoR has not voted approval of the GNA. Surely the CBL has been dispensing funds to the GNA up to now or they would not have been able to survive. The HoR mandate as an elected government ran out over a year ago and was not legally extended. The illegality argument is a pitiful excuse for a policy that has been hamstringing Serraj. Added to its other problems, Libya now seems to be under control of foreign financial institutions which will bring it austerity and policies that may provoke even further unrest.