Exclusive: Commenting on the Finance Minister’s Decision to Abolish the Customs Dollar Rate, Al-Farsi: The Measure Shifts from Being a Tool to Boost Public Revenues to a Wrecking Ball for Purchasing Power

Ayoub Al-Farsi, a member of the Monetary Policy Committee at the Central Bank of Libya, told our source exclusively that the Finance Minister’s decision to raise the customs dollar rate to 6 dinars, up from around 2.25 dinars, highlights a fundamental contradiction in the management of Libya’s economic and fiscal policies.

According to Al-Farsi, Ministry of Finance Resolution No. 160 of 2026, which abolishes the estimated customs dollar rate (previously ranging between 2.01 and 2.5 dinars) and adopts the official exchange rate applied by the Central Bank of Libya (currently around 6.40 dinars after taxes or exchange-rate adjustments), represents a major supply-side shock to the domestic economy.

He added that, in the absence of effective price controls and oversight of documentary credit implementation mechanisms, the measure shifts from being a tool for enhancing public revenues into a “wrecking ball” for citizens’ purchasing power.

Imported Inflation and Rising Prices

Al-Farsi explained that the sudden increase in the customs valuation base by more than 218% effectively triples customs duties and related taxes.

Given the lack of market oversight and control over traders’ profit margins, importers are unlikely to absorb these higher costs. Instead, they are expected to pass them on entirely—often with an additional precautionary markup—to consumers.

The inflationary effect is compounded because importers are already facing higher international shipping costs and foreign-currency procurement expenses, to which the customs-duty shock is now added.

Greater Distortions in the Documentary Credit System

Al-Farsi noted that one of the stated goals of customs-related reforms is to combat fraudulent documentary credits and reduce opportunities for excessive profits. However, without coordination with monetary policy, the results may be counterproductive.

Increased Smuggling and Tax Evasion

The sharp rise in customs charges at official ports creates a strong incentive for importers to seek unofficial channels through smuggling or to manipulate invoices by understating the value of imported goods (under-invoicing) to reduce customs obligations.

Higher Financing Costs

Importers who previously required a certain amount of dinar liquidity to pay customs fees upon the arrival of goods now need substantially more cash to clear shipments. This deepens liquidity pressures in the commercial sector and further raises the overall cost of goods.

Lack of Coordination Between Fiscal and Monetary Policies

Al-Farsi argued that the current situation reflects a clear contradiction in Libya’s policy mix:

• The Central Bank is attempting, through monetary tools, liquidity management, and foreign-currency sales, to contain inflation and stabilize the dinar.
• Meanwhile, the Ministry of Finance is pursuing fiscal and trade measures aimed at increasing revenue collection, which automatically raises prices.

He compared the situation to monetary policy pressing the brakes to calm markets while fiscal policy presses the accelerator, fueling inflation. The result, he said, is the cancellation of any positive effects, with citizens’ purchasing power becoming the primary casualty.

Risk of Deepening Stagflation

With government salaries and real household incomes largely unchanged, Al-Farsi warned that the sharp rise in prices—especially for goods that make up daily consumption and are more than 90% imported—will significantly reduce effective demand.

This could push markets into a state of stagflation, characterized by economic stagnation combined with rising prices.

Conclusion

Al-Farsi concluded that any fiscal reform focused solely on revenue collection and accounting adjustments, without strict oversight of documentary credits and without administrative and geographical unification of border crossings, remains incomplete.

He stressed that, in economic theory, customs duties are intended to protect domestic production and regulate trade—not merely to generate revenue to finance excessive consumption-oriented public spending.