By: Suliman S. Al-Shahomy*
The economic and financial situation in Libya has entered financial crisis with growing budget defec
tion. Defection in 2013 reached 10 billion, in 2014 it reached 22 billion, in 2015 defection reached 20 billion. This is due to lack of revenues either from oil, gas or local revenues like taxes and customs fees. Beside increased expenditures on salaries and subsides, which exhausted general budget, while not reflected at any developments or infrastructure projects.
Commercial statues deteriorated inside Libya, authorities lost, in light of current crisis, control over imports, commercial balance in 2014 refers to defection worth 18 billion. Despite that, sovereign revenues decreased comparing to previous years, and that indicates rampant corruption and lack of sovereignty manifestations over state resources.
As for monetary situation, it is likely the same as commercial and financial ones, banks suffer lack of local liquidity, citizens queue for hours outside banks to get their salaries, and on the other side, merchants keep money outside banks fearing of imposed limits on withdrawing operations.
Money outside banks has reached unprecedented levels, nearly 24 billion with monthly raise worth 1.7 billion, banks are not able to repay withdrawing requests from current accounts, which is dangerous phenomena that could cause the collapse of confident in banking system. Reasons range from fear of abductions, to thefts in the light of security situation, beside lack of motivation to supply money from commercial banks due to the halt of investments certificates from the Central Bank. What is more strange is that some banks impose extra fees on money deposits, they consider deposits as burdens they can’t use in credit operations for economic activities, which are semi halted.
In the wake of stumbling banking sector face, and increased request on foreign currency, the Central Bank worked to reorganize foreign currency selling operations, and lowered yearly allowed amount for individuals to the half, put new highly complicated regulations to open documentaries credence, which assigned banks to supervising, which supposed to be the role of the economy ministry.
The Central Bank specified foreign currency budget for each bank to meet requests of opening credences. It is no doubt that foreign reserves at the Central Bank, worth $80 billions, are the only guarantee it depends on to face the possible collapse of the local currency, but what we need to fix the current situation and improve local currency is new backs of economic politics. All procedures that carried out by the Central Bank of Libya (CBL) are unilateral actions and shorthanded that can’t properly fix exchange rates deterioration in parallel markets. Quantitive easing policies applied by the CBL to cover currency losses outside banks are extremely dangerous.
The question asked by everyone, what can CBL and Libyan state do to save the deteriorating situation, in which citizens face grave sufferings at all levels and can’t even get his basic needs, and his day turned to long lasting queues between gas stations, banks and bakeries.
Here I suggest some proposals to fix the current statues:
First: The CBL can’t continue imposing old fashioned useless regulations that impede the supply of commodities and merchandising to Libyan markets, it has to reconsider regulations of opening documentaries credences, which are not of its authorities. Control and inspection are the role of the ministry of economy and commercial chambers union, both have to coordinate to build a structure that guarantees minimum level of understanding and cooperation to prevent misuse of credences.
Second: In my opinion, the CBL has to face parallel Dollar markets and pump the needed liquidity to end the leak of Libyan currency outside banks. The government has to apply extra fees on Dollar selling operations. The CBL might specify the selling price starting from current Dollar rate at the black market, which is 3.50 Dinar per Dollar, and gradually decreases the price on pre determined periods, by heuristic, until prices reach 2 Dinars per Dollar, and assign the difference between official price and fees added price to fund budget defection. Of course such procedure would consume part of reserves, but will definitely improve prices in local markets.
Third: Laws preventing dealings with banking benefits should be freeze, at least between the CBL and banks, until processing transformation to Islamic banking system for three years, as this will help the CBL and banks manage liquidity and achieve revenues, in the light of inactive banking credit operations, beside, reformulating credit policies building new borrowing programs for and medium small projects.
Fourth: The CBL has to put proper resolutions to gather liquidity outside banking frame, which reached terrifying levels, it can use Dollar selling operations continuously and steadily within specified time frame, with regulations guarantee liquidity flow to banks.
Fifth: Ministry of Finance should work to control statues of public finance, rationalize spending and control waste in salaries, via involving Labor Ministry to control workers statues and illegal practices and using national ID for salaries cashing across all public and private institutions, improve sovereign revenues like taxes and custom fees, issue treasury bonds by activating Libyan finance market to organize tools of issuance and circulation to improve reconstruction and infrastructure, and attract deposits.
Sixth: We can no longer afford the continuity of subsidies policies in the light of current situation, it became a necessity to abolish subsidies and moving towards monetary alternatives and apply social protection programs via retirement fund, solidarity and development fund.
Seventh: The return of oil exports, as soon as possible, restores security.
All previous points can form cohesive economic program, need specialized team work to build the required structure and its practical steps, but also need unified government capable of controlling all Libya and put cohesive economic policies to get out of the current crisis.
This would cost part of foreign currency reserves, but we have no other choice, the current statues would lead to more deterioration at which foreign reserves won’t be of much great use, especially with the flooding policies the CBL is applying by printing new local currency to compensate losses.
Everyone has to level up to their national responsibility and contribute to saving national economy and Libyans from this dangerous economic calamity.
*A Libyan Finance Expert and The Founder of Libyan Financial Market
Translated By LIBYAPROSPECT