Tag: exchange rate

The Governor of the Central Bank of Libya issued a statement today, Sunday, regarding the Bank’s decision to adopt a series of strict measures, including a reconsideration of the exchange rate, in order to create balance in the economic sectors amid the lack of hope or prospects for unifying the dual government spending.

The Governor revealed that the volume of dual public spending during 2024 reached 224 billion Libyan dinars, including 123 billion in expenditures by the Government of National Unity, 42 billion in oil swaps, and about 59 billion in spending by the eastern-based Libyan government. This was matched by oil and tax revenues totaling 136 billion dinars. This level of spending created a demand for foreign currency amounting to $36 billion.

He continued: The expansion in dual public spending over the past years, and particularly in 2024, has led to a sharp increase in the money supply, which has reached 178.1 billion dinars. This is expected to result in several negative economic effects and poses serious challenges to the Bank due to the limited tools available to contain it. It will also create further demand for foreign currency, continued pressure on the Libyan dinar exchange rate in the parallel market, higher inflation rates, and risks to the public’s trust in the local currency.

He added that foreign currency revenues from oil exports deposited at the Central Bank amounted to only $18.6 billion in 2024, while expenditures in foreign currency reached $27 billion, leading to a significant gap between the demand for foreign currency and what is available. This has made it difficult for the Central Bank to define a clear exchange rate policy due to the increasing demand for foreign currency and the expansion of dual public spending.

He stated that if decisions to spend continue to be issued based on the 1/12 monthly budget formula in 2025 by both governments, and public spending continues at the same pace as in 2024, reaching 224 billion dinars, it will worsen the financial and economic situation of the country. This will present new challenges for the Central Bank, increase the demand for foreign currency, exacerbate deficits in the balance of payments and the general budget, and lead to a growing public debt.

He pointed out that data from the first quarter of 2025 clearly show the continuation of dual public spending, deficit financing, and increased demand for foreign currency, while oil revenues remain insufficient to cover the gap—something he described as dangerous. Foreign currency expenditures in Q1 amounted to around $9.8 billion (including $4.4 billion in letters of credit and transfers, $4.4 billion via business and personal-use cards, and $1 billion in government spending), equivalent to 55 billion dinars. Meanwhile, oil revenues and royalties deposited in the Central Bank amounted to only $5.2 billion by March 27, resulting in a deficit of about $4.6 billion in just three months. The situation could become even more critical if oil production or export levels decline due to any variable, or if global oil prices drop.

He added that the expansion of public spending, resulting from various decisions and laws, has increased the public debt held by the Central Bank in both Tripoli and Benghazi, reaching around 270 billion dinars—84 billion in Tripoli and approximately 186 billion in Benghazi. The total public debt is expected to exceed 330 billion dinars by the end of 2025 in the absence of a unified budget and with spending continuing at the 2024 rate. This is an extremely serious and unsustainable indicator and will cause major distortions in macroeconomic indicators.

He continued: To reduce the gap between supply and demand for foreign currency and the balance of payments deficit, the Bank was forced to use part of its foreign currency reserves temporarily to maintain exchange rate stability at acceptable levels, in order to preserve the prices of goods and services, and limit runaway inflation and the erosion of purchasing power. However, reliance on reserves is unsustainable. Therefore, the Central Bank had no choice but to reconsider foreign exchange regulations and the exchange rate in order to contain the consequences of unrestrained public spending and the absence of effective, goal-oriented macroeconomic policies.

The Central Bank affirmed that it continues to fulfill its duties in maintaining foreign assets at levels exceeding $94 billion, including $84 billion in reserves managed by the Bank, despite the significant challenges and the risky environment in which it operates.

It also noted that the inability to combat and curb the smuggling of goods and fuel has worsened the crisis by increasing the demand for imports and draining the foreign currency available to the Central Bank. Furthermore, the growing number of unregistered foreign workers and illegal migrants—estimated to cost around $7 billion annually—has increased the consumption of goods and demand for foreign currency in the parallel market, which has become a source of funding for illicit activities, money laundering, and terrorism financing.

Financial expert Khaled Al-Zantouti told our source exclusively, “For years, we have failed to establish a fair exchange rate for the dinar, one that is determined using standard economic models based on recognized macro and microeconomic variables.”

Al-Zantouti added, “Over the years, the exchange rate for our dinar has been determined by a group of speculators in the Souq Al-Mushir, driven by their interests and benefits. These individuals (not to generalize) manipulate the supply of dollars to control the rate. This occurs amid the absence of effective monetary policies from the Central Bank of Libya, which has remained a passive observer without monetary policy tools or authority over the reckless spending of competing governments. These governments, in some cases, collaborate with those speculators in a covert agreement to undermine the dinar’s strength.”

He continued, “Amid this shameful and consumption-driven competition and the collusion of crisis traders, the Central Bank remains paralyzed, unable to address the dinar’s plight. This paralysis stems from the lack of integration between monetary, fiscal, and trade policies, not to mention the uncertainty around how the exchange rate is determined—whether it’s fixed, flexible, or subject to partial or full floating.”

“These cumulative factors make it extremely difficult to estimate the exchange rate for 2025 scientifically or objectively. Unfortunately, indicators suggest a continuation of the confusion and speculation that marked previous years.”

Al-Zantouti also noted, “It is evident that the Central Bank, under its new administration, is attempting to establish a foundation for its monetary policy and regulate the currency exchange market. While this effort is commendable, it will likely take time. Ultimately, the Souq Al-Mushir will remain the decisive factor in determining the exchange rate.”

He highlighted the Central Bank’s ability to defend the current exchange rate (with the 15% tax) by ensuring dollar supply, combating inflation, maintaining foreign currency reserves, and potentially using these reserves if oil revenues decline. He remarked, “If the Central Bank manages to maintain the current rate between 6.10 and 6.40, under the present circumstances, it would be a significant achievement.”

Al-Zantouti concluded, “Given the prevailing conditions of unchecked government spending, political instability, and uncertainty around oil prices and production, the Central Bank cannot fundamentally address the exchange rate issue or set a fair and sustainable rate for the long term. However, if it succeeds in maintaining the range of 6.10–6.30 this year, it would undoubtedly be a positive accomplishment. We hope for this outcome.”

Our sources within the banking sector have revealed that the Board of Directors of the Central Bank of Libya is scheduled to hold a meeting next Sunday.

According to the sources, the discussion will include the topics of the exchange rate and taxes.

Economic expert Suleiman Al-Shhumi spoke exclusively to Sada Economic newspaper, commenting on the recent decisions made by the Board of the Central Bank of Libya during its first meeting, part of a short-term plan aimed at providing a positive boost to the Libyan community and the financial and economic sectors. However, he expressed concerns that the Board’s decisions might have set expectations too high, suggesting they should have been more precise, especially regarding the opening of interbank clearing between the east and west.

He explained that the decision to open interbank clearing requires more than a decree from the Central Bank; it demands genuine intent, with clear, positive steps announced for opening it. This is particularly important because clearing is linked to settling the accumulated public debt held in the Central Bank’s branch in Benghazi. Such a settlement requires a political decision (a legislative decision by both councils) and the Bank’s actual ability to implement it on the ground by carrying out the settlement and opening clearing comprehensively, rather than through the temporary balance transfers previously attempted.

Al-Shhumi added that, in the past, the Central Bank claimed it had opened clearing, but existing issues created obstacles to a full and comprehensive clearing process. The Bank also made optimistic promises for the future, such as implementing lease financing under the 2010 law, though this law may need significant amendments to enable the proper establishment of lease financing companies, along with time to organize it effectively.

He further noted that opening the currency exchanges requires exchange rate stability and an adequate supply of foreign currency, among other conditions that may not be immediately achievable. On investment and deposit usage, he suggested the Board should prioritize applying the law that reinstated traditional interest, passed in 2023, and questioned why this law has not been implemented.

Al-Shuhumi argued that the Central Bank should focus on its core role in managing the exchange rate. He highlighted that the Bank’s statement did not indicate any plans to reassess the exchange rate, nor did it address the tax on foreign currency sales despite court rulings calling for its repeal. While the recent decisions convey a positive and necessary message, he believes some will be difficult to implement. Moreover, the statement ignored key issues central to the Bank’s role, such as exchange rate management, transparency, and how the Bank intends to address the presence of two governments in the country.