Exclusive: Al-Gmati: Raising the Customs Dollar Rate Will Increase Living Pressures and Make Citizens Bear the Cost of Economic Imbalances

The Head of the Economics Department at the University of Benghazi, Helmi Al-Gmati, told our source exclusively that increasing the customs exchange rate from 2.2 Libyan dinars to around 6 dinars is not merely a technical adjustment; rather, it effectively represents the reimposition of an indirect tax on imports.

Al-Gmati explained that while the decision carries mixed economic effects, its cost to citizens and the private sector in Libya—amid ongoing political division and near-total dependence on imports—will outweigh its short-term benefits.

He pointed out that the Ministry of Finance has abolished the fixed customs dollar rate, and customs duties are now calculated based on the official exchange rate set by the Central Bank of Libya, which currently stands at approximately 6.3 dinars per U.S. dollar.

He illustrated that an imported product worth $100 and subject to a 20% customs duty was previously calculated using an exchange rate of 2.2 dinars per dollar, whereas it is now calculated using approximately 6.3 dinars per dollar. This means the customs valuation base has increased by about 186%.

Al-Gmati added that this does not necessarily mean the product’s final price will rise by the same percentage, since customs duties constitute only one component of the final cost alongside import costs, transportation, storage, and profit margins. However, he expects imported goods prices to rise to varying degrees, particularly for vehicles, spare parts, electrical and electronic appliances, construction materials, and consumer goods subject to high customs duties.

He stressed that basic goods exempt from customs duties should theoretically experience only a limited impact. In practice, however, they may still be affected due to higher transportation and distribution costs and weak market oversight.

According to Al-Gmati, economic theory suggests that the government aims through this measure to unify exchange rates, reduce distortions, increase non-oil revenues, improve tax system efficiency, and reduce opportunities for corruption and customs fraud resulting from the gap between the official exchange rate and the customs dollar rate.

He added that while these objectives appear logical in theory, Libya’s problem lies not in the theory itself but in the economic environment in which it is applied. He noted that, according to New Institutional Economics theory, the success of any fiscal reform depends on the quality of institutions.

Al-Gmati emphasized that Libya currently suffers from political and institutional division, dual public spending structures, weak market supervision, and a rentier economy heavily dependent on oil. Furthermore, more than 85% of domestic consumption is covered through imports.

In such circumstances, he argued, raising the customs dollar rate transforms from a reform tool into an additional inflationary factor.

He explained that the Exchange Rate Pass-Through theory indicates that any increase in import costs is gradually transferred to the final consumer. In import-dependent economies such as Libya, this transmission tends to be both rapid and substantial.

He expects the decision to contribute to higher inflation, erosion of household purchasing power, increased pressure on the middle class and low-income groups, and a widening gap between wages and prices.

Regarding government revenues, Al-Gmati stated that the measure will boost revenues in the short term, as customs collections increase with higher customs valuations. However, he warned that excessive customs burdens, according to the Laffer Curve, may eventually reduce official imports, increase smuggling, expand informal trade, and raise customs evasion rates, potentially harming actual revenues over the medium term.

Al-Gmati concluded by saying that raising the customs dollar rate under current conditions is akin to addressing the public finance deficit through consumers’ pockets. While the measure may generate additional revenue for the state treasury, it will not address the root causes of Libya’s economic crisis, namely uncontrolled public spending, the lack of coordination between fiscal and monetary policies, weak domestic production, and institutional fragmentation.

He stressed that genuine reform does not begin with increasing import costs, but rather with controlling public spending, unifying institutions, stimulating production, and improving public administration efficiency. Libya’s problem, he argued, is not a lack of revenues but poor resource management. Any fiscal policy implemented amid political division and fragmented institutions will ultimately shift the cost of economic imbalances directly from the state budget to citizens.