By Aidan Lewis
TUNIS, Nov 22 – The Libyan dinar has dipped to new lows on the parallel exchange market, despite a pledge from the U.N.-backed government and the central bank to protect its value and tackle urgent economic challenges.
One black market currency trader told Reuters that $1 was buying more than 6.5 dinars in Tripoli on Monday, having passed 6 dinars for the first time in recent days. The official rate is 1.4 dinars to the dollar.
The widening black market premium is seen as a sign of the erosion of confidence in the Government of National Accord (GNA), which has struggled to make an impact since arriving in Tripoli in March.
Power brokers in Libya‘s east have withheld their support from the GNA while frustration in the west has built over the government’s inability to deal with chronic insecurity, collapsing public services, steep inflation and a liquidity crisis.
The government is struggling to overcome five years of turmoil since the overthrow of former leader Muammar Gaddafi in 2011 led to competing power bases and allowed Islamic State militants to take over pockets of the country.
Some ministers have not taken up their posts and the GNA’s leadership, or Presidential Council, has been at loggerheads with the Central Bank of Libya (CBL) over the disbursement of public funds and economic policy.
At a meeting in Rome last week, the council set itself a deadline of Dec. 1 to decide on a package of decisions to address the economic crisis, with the council and central bank pledging to “continue to co-operate on steps to support the Libyan dinar”.
The CBL agreed late last month to make 8.6 billion dinars ($6 billion) available to the council, and the Rome meeting was attended by a newly named deputy finance minister who is meant to smooth the release of funding.. The council is expected to agree an emergency budget for 2017 within a month.
But the mechanics and approval of expenditure have been hard to negotiate, and the CBL and the council remain split over devaluing the dinar and cutting subsidies to reduce Libya‘s deficit, according to diplomats briefed on discussions.
“There’s full recognition that devaluation is a necessary step on the way to economic recovery,” said one Western diplomat. “There are two questions, one is timing and the second is who’s going to take the rap.”
Further complicating the situation are splits within the council, whose nine members were selected in an attempt to unite factions that had backed rival governments in Tripoli and the east since 2014.
Those associated with factions based in eastern Libya have criticised recent international efforts to mediate the crisis and Fathi al-Majbari, the council member who has held the financial brief, refused to take part in the Rome gathering or a previous meeting in London.
OPEC member Libya is highly dependent on oil sales, but reduced output and falling prices have slashed revenues to a fraction of former levels. Oil production has recently doubled to about 600,000 barrels per day (bpd), but remains well below a high of 1.6 million bpd.
The country remains beset by insecurity, including in Tripoli, where rival militias that have retained power on the ground have been involved in fresh skirmishes since Friday.