Kawthar Zantour
The country now boasts its highest-ever gold reserves at 146.65 tonnes. Its previous highest was 143.82 tonnes in 2000. Recent foreign exchange transactions indicate that the Central Bank of Libya purchased 30 tonnes of gold last year, boosting the country’s reserves to their highest level since the fall of dictator Muammar Gaddafi in 2011.
It is now widely known that Libya’s gold reserves were looted around the time of Gaddafi’s ouster. Some estimates suggest that 20% of the stock was stolen. Libya recently implemented foreign exchange sales fees that are expected to further depreciate the value of the Libyan dinar by over 27%.
Had it not been for the introduction of these new fees, Libyans would not have known that their central bank had acquired 30 tonnes of gold valued at nearly $2bn back in June 2023, marking its first such purchase in a quarter of a century. When news reached them, Libyans were surprised. The country now boasts its highest-ever gold reserves at 146.65 tonnes. Its previous highest was 143.82 tonnes in 2000.
Dbeibeh and Al-Kabir
Various quarters in Libya, including the Government of National Unity, the High Council of State, parliamentarians, academics, and experts, have criticised the recently approved foreign exchange sales fees. Prime Minister Abdul Hamid Dbeibeh defends the imposition of these fees by citing positive economic and financial indicators, such as Libya’s return to gold storage.
The heaviest criticism came from Central Bank Governor Al-Sadiq Al-Kabir, who was anxious about significant government spending expansion. Last month, Al-Kabir attributed the currency’s decline to informal spending by state institutions and advocated for a unified national budget and the formation of a coherent government.
As Libya’s finance controller, Al-Kabir refused to finance Dbeibeh’s proposed budget and has excluded wage disbursements from consideration. With his decision to restrict funding sources, an open conflict has broken out between the two men. In most other countries, the prime minister would have more heft in this tussle.
In Libya, however, the balance of power and the internal dynamics suggest that Dbeibeh could end up being the one removed from office. The prime minister appears to lack the ability to effectively challenge the Central Bank’s governor, who has been in power since 2011 and has significant control over the country’s finances.
Growing pains
Enhancing its gold reserves is a crucial safety net for Libyan state coffers that could hedge against inflation, economic and financial fluctuations, and geopolitical tensions. It could also diversify investment portfolios while stabilising currency value. However, in Libya, the nation’s gold reserves are seen through both an economic and political lens.
The International Monetary Fund (IMF) thinks Libya will have the Arab world’s highest growth rate in 2024, at 7.5%. Foreign exchange reserves are estimated at $82bn. Yet it still grapples with transparency and legitimacy issues, partly because the country has had two governments since 2014—one in eastern Libya, in Benghazi, and the other in western Libya, in Tripoli.
Rampant corruption, institutional fragility, and external ambitions—namely, competing interests for control of Libya’s oil wealth—exacerbate the situation. The Government of National Unity operates in the east, while the Government of National Stability is in the west. Ironically, unity and stability remain elusive. Libya has a troubling history of mismanagement and looting. Many suspect Gaddafi or his closest aides took the gold in 2011. To this day, the gold has never been found or traced despite numerous internal and external investigations.
Counting the coins
According to the London-based World Gold Council, Libya’s reserves are the 28th biggest globally. That means it has the fourth-highest reserves in the Arab world after Saudi Arabia, Lebanon, and Algeria and the second-largest stock in Africa (after Algeria). In 2000, Libya stopped storing gold. This coincided with the lifting of US-European sanctions and embargos imposed after the bombing of a plane over Lockerbie in Scotland in 1988, attributed to Libyan intelligence agents.
A central bank’s decision to increase its share of gold reserves can be influenced by a major foreign currency issuer’s imposition of sanctions. By way of example, Russia promptly consolidated its gold assets following sanctions triggered by its invasion of Ukraine.
Libya’s gold reserves were reportedly modest until 1968, at 78 tonnes, but reached 113 tonnes by 1984 and 143 tonnes by 2000. This is when Libya began transitioning from a blockaded state to one embracing openness through initiatives encouraging foreign investment.
In the decade after, Gaddafi granted access to the Libyan carbon industry to Western companies. This opening led to exceptional growth, according to data from the World Bank. From 2001 to 11, Libya’s state assets, gold reserves, and foreign currencies grew sevenfold, from $13.73bn in 2000 to $110.54bn when Gaddafi fell.
The latest World Bank Group data for 2022 put Libya’s reserves at $86.68bn, but today, it faces a shifting political, economic, financial, and geopolitical landscape.
Hedging bets
Dr Saqr Hamad Al-Jibani, an economics professor at the University of Derna, thinks last year’s decision to buy the gold was a defensive move. He told Al Majalla that it was “aimed at bolstering the resilience of the Libyan economy against local and external shocks, supporting the national currency, and enhancing economic stability to cover import expenses”.
Yet despite these efforts, the Libyan dinar continues to depreciate. The dollar exchange rate is now expected to rise from LYD 4.8 to LYD 5.95-6.15. Parliament’s Speaker Aguila Saleh Issa says the exchange rate fees will remain applicable until the year’s end. Many central banks give data on trends that reflect their monetary and fiscal policy choices aimed at addressing current and future challenges, unlike the Central Bank of Libya (CBL).
For instance, the Hungarian central bank justified the tripling of its gold reserves (to 94.5 tonnes), stating in March 2023 that “managing the new risks arising from the COVID-19 pandemic played a key role”. Global concerns over government debts and inflation further enhanced the importance of gold in Hungary’s national strategy “as a safe-haven asset,” it said.
Head for safety
The Hungarians were not alone in their thinking. According to Reuters, demand for gold has surged over the past two years, reaching a record high of $2,431 per ounce on 12 April. Several central banks have made large purchases, including China’s, which boasts the world’s second-largest gold reserve (2,235 tonnes) after the United States (8,133 tonnes).
China has increased its reserves for 16 consecutive months to diversify away from the US dollar amid escalating political tensions with Washington. A report from the International Gold Centre revealed that in 2022, central banks collectively purchased $70bn worth of gold, the highest amount since 1950.
The report attributes this trend to mounting macroeconomic and geopolitical uncertainties, prompting governments to revert to safety. It further predicts that gold purchases will continue at a similar pace in 2024 to mitigate against inflation and currency fluctuations.
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Kawthar Zantour – A Tunisian journalist specialised in economic and political affairs, based in Tunisia.
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