Economic expert “Mohammed Al-Safi” writes: the Central Bank… unified spending… and economic reconciliation.
Many have long viewed Libya’s problems in a linear way, where there is a sequence of reforms that begins with solving the political problem first, followed by social reconciliation, and only later comes economic reform.
This linear approach to pulling Libya out of its current quagmire has persisted for a long time (and still does), but without any tangible results. Political division has actually increased; on the contrary, it has become a reality with its own institutions, and the state has found a certain balance to coexist with it (despite its lack of sustainability). Meanwhile, social reconciliation—which the Presidential Council was established for—has seen no real progress.
Here, for the first time, the linear image of reform is being reversed after the failure of the 2021 elections, and the emergence of a “let bygones be bygones” culture that has dampened or frozen the urgent need for national reconciliation, at least for now…
Under these circumstances, the Central Bank seized the opportunity—with American support—to play the role of mediator and to advance “economic reconciliation” ahead of political and social reconciliation (after both stalled), successfully convincing political actors to sit at the negotiating table and discuss the budget.
I firmly believe the Central Bank succeeded in convincing different parties that there is an urgent need to control public finances; otherwise, inflation and poverty will become the greatest threat to their political ambitions.
A change in leadership at the Central Bank, and its operation as an institution with a full board after a long period of a “one-man show,” gave it the ability to act as a mediator among all parties. It has effectively become something like a presidential council for economic affairs.
But will the Central Bank succeed in achieving economic reconciliation?
Here I present 3 reasons for optimism and 3 reasons for caution:
Reasons for optimism:
- For the first time since Libya’s division, the budget is receiving this level of local and international attention. Previously, elections or war actors were the top priorities. I believe there is now a recognition among key players that the current economic situation is a ticking time bomb that could explode at any moment and must be contained or at least temporarily defused. This, if true, indicates a convergence between political interests and economic necessity.
- With armed conflict subsiding and relative security stability, economic issues have become the main concern for Libyan citizens. I always say that inflation will be Libya’s biggest problem over the next five years. Politicians eager to remain relevant are listening closely to public sentiment, and voices demanding control of inflation and the fight against corruption are growing louder. Politicians have picked up these signals and are competing to present themselves as solutions.
- Politicians falling into what is known as “audience cost”: by focusing on economic reconciliation, it has become clear to the public that the cause of the dollar crisis is not merchants or cash currency itself, but rather bloated public spending and the fiscal bomb. If they fail to reach an agreement, they will face significant public backlash.
Reasons for caution:
- The discussion focuses only on spending, while the revenue side is absent. Where will this spending be financed from, especially since oil revenues are barely sufficient? If they fall into the trap of public debt under the slogan of unified spending, this reconciliation will have no positive economic impact.
- What guarantees exist for unifying expenditure? Will it be through a formal budget law or just an agreement between parties? Are there any penalties or constraints in case of violation or pressure on the Central Bank? And who will monitor these guarantees? These questions remain unanswered.
- Why all this secrecy around the agreement? Wouldn’t it be better to issue a statement clarifying the terms and general framework of the agreement? Secrecy in such matters raises more suspicion than reassurance.
The financial “time bomb” is growing over time, and its explosion is increasingly unpredictable, but the fuse is short and political actors are aware of it. Economic reconciliation is an important step to defuse this bomb, but it must be protected from the following risks:
- Political actors controlling the financial system entirely.
- Using it as a pretext to extend the status quo.
- Using it as justification to drain state assets and reserves.
Unifying spending without controlling it is not economic reform… true economic reconciliation lies in unifying and rationalizing expenditure.
