By: Suliman S. Al-Shahomy*
It seems that some merchants want the revaluation to four Dinars
for the Dollar, as proposed by the chairman of General Libyan Union of Chambers, so quantification of Dollar selling could stop from the Central Bank of Libya (CBL), and to
execute purchase with the new price. Merchants know they now estimate prices according to Dollar rate in the black markets, not the official one, and those who import commodities with the official price sell with an average between the regular and black market rates, in case they couldn’t get new credentials from the CBL.
The defense for that matter is that the country should turn the only direct fuel subsidies into direct financial aids, in exchange for officially raising the prices, and reactivate family perquisite. But raising fuel subsidies means increasing fuel prices for both citizens and industries, and an increase in power prices, transportation, which would be hard to citizens in remote areas. And given the inability of electricity company to provide adequate services, the collection of electricity fees would be impossible.
Officially, modifying the exchange rate means adjusting prices levels, doubling it would absorb any monetary aid given to citizens as a substitute to subsidies. Thus such simple idea won’t save citizens from prices clutches in the markets, fuel, and electricity. Let us clear it more practically; fuel subsidies is about 6 billion Dinars, with 1.4 Dinar for the Dollar, which worth $4.30 billion, adjusting exchange rate to 4 Dinars to the Dollar, means subsidies coast would be ($4.30 billion multiplied by 4 Dinars, which worth 17 billion Dinar), citizens here would get only 6 billion Dinar equally distributed as an offset, not 17 billion, so will it cover their new requirements? What about the increase in electricity prices, transportations which indeed would be tripled.
There is no doubt that there is a waste of money and resources in Libya either with or without subsidies, but the solution is not a magical move (adjusting exchange rate and floating the Dinar) that could solve all existing problems, especially corruption that would continue and end all that is left even with subsidies removal.
With changing the rate, the CBL won’t be able to address the demands on the foreign currency, which means more waste in the foreign reserves, given the current situation and spread corruption. We have governmental needs worth $6 billion, and capital requirements to develop oil, gas, power, and water sectors, all that need enough currency cover to face the severe deterioration across all sectors, now and in the future.
If the exchange rate is to be modified, the government must provide more local revenues to cover expenditure increase due to the adjusted exchange rate and increased deficit that violates laws via increasing tax rates for the private sector and employees’ salaries. Thus, any direct monetary aid given to citizens by one hand will be taken with the other, the cost would be very high for the private sector, commercial, industrial, and service, for the increased specific taxes on income, general revenue taxes, and other fees that need an increase in other kinds of taxes.
What is the solution? Should we rush to amend the exchange rate without accurate calculations, as some demand to serve their interests? Or should the CBL define monthly supplied quantity of Dollars, as it is doing now although the commodities tabulation is inaccurate with significant flows of goods like sugar and baby milk, and no allocations for developmental projects like factories supplied by the private sector, or industrial needs for existing industries?
There is no room to solely modify the exchange rate without inclusive reform program, adjusting the rate should be the focal point for the economic reforms that take into consideration the creation of a new system for social protection for citizens, especially with weak income, students and people with disabilities.
Such programs need strong government, capable of adopting certain and definite economic program, and know how to trigger all its variables to achieve economic balance, within defined time frame; it also needs one unified CBL, under uncontested one board of directors. Emotions or personal interests do not manage the economy, but via means that consider the current circumstances, human components, abilities, different crises, and weakness and strength points. The times of crises, the inner wars, and conflicts, are not the right times to restructure the economy or even carry deep operations that might lead to bigger catastrophe, now we should adopt a bubbled economy to provide minimum basic needs for citizens, avoid expanded spending due to corruption, till matters settle down, devolve to a government that is capable of applying economic, social, educational, health, security and humanitarian programs, one unified CBL for all Libyans, traders, and manufacturers union that reflect inclusive economic vision serves everyone.
*A Libyan Finance Expert and The Founder of Libyan Financial Market