Ali Noureddine

The geopolitical dynamics involving regional powers add layers of complexity to the Central Bank of Libya’s operations. Without a cohesive political framework, Libya’s economic stability and the efficacy of its Central Bank may remain precarious.

Libya’s oil production has returned to normal as of October 9, 2024, according to the National Oil Corporation, following the reopening of all fields and export ports. The “force majeure” that had halted operations for over a month and a half was lifted, after a political dispute over the leadership of the Libyan Central Bank between the eastern and western governments was resolved through U.N. mediation, resulting in the appointment of a new governor.

Despite the significance of this agreement, it did not address the broader challenges facing the Central Bank, particularly those stemming from Libya’s ongoing political division and disputes over governmental authority. By October 13, 2024, more than 2.5 million public sector employees were still awaiting their salaries for the previous month due to administrative and bureaucratic delays.

The Complexities of Libya’s Central

Bank Disputes

Under typical circumstances, central banks manage monetary policy and oversee the financial system, coordinating with government fiscal policies and public spending directives. However, Libya’s political landscape has placed the Central Bank of Libya in an exceptional situation, as it is the sole legal recipient of the country’s oil revenues – vital in a nation where revenue from oil accounts for 96.7 per cent of public spending. This dynamic leaves the bank caught between two rival governments vying for legitimacy.

In effect, the battle over the Central Bank has become a proxy for the larger struggle over control of oil revenues. While various armed factions compete for control of oil fields and operations, the management of the Central Bank remains the key to accessing public funds and executing government spending orders from both the eastern and western governments.

This struggle was highlighted on August 26, 2024, when the eastern-based government in Benghazi, led by Osama Hamad, announced the closure of all oil fields under its control. This move was in response to the dismissal of the former Central Bank governor, Al-Siddiq Al-Kabir, by the Tripoli-based Presidential Council. The situation escalated quickly, with Al-Kabir forced to flee the country, alongside other senior bank officials, fearing attacks from armed groups in western Libya.

The Hamad government in the east of the country justified the suspension of oil production as a measure to protect Libya’s financial reserves and oil revenues. It made clear in a statement that it would not resume production without a settlement that ensured its influence over the management of oil wealth, citing the need to “protect the livelihood, wealth and reserves of the Libyan people held by the Central Bank of Libya. The country’s oil output subsequently plunged from 1.2 million barrels per day to just 450,000 barrels, given that most oil fields are located in eastern Libya.

These developments reflect the deteriorating relationship between Al-Siddiq Al-Kabir and the western-based interim national government, led by Abdul Hamid Dbeibah. At the core of the dispute were disagreements over access to Central Bank funds and spending directives, which were key to maintaining the loyalty of armed groups in Tripoli. Al-Kabir had publicly criticized Dbeibah for ramping up government expenditure on consumption at the expense of development projects, further straining ties.

In response to these tensions, the Presidential Council – aligned with Dbeibah – dismissed Al-Kabir, triggering further conflict with the eastern government and its allied armed groups. The subsequent closure of oil fields prompted the United Nations to intervene, ultimately brokering a settlement that allowed all parties to have a say in the appointment of the new Central Bank leadership.

Major Ongoing Challenges

The recent settlement resulted in the appointment of Naji Muhammad Issa Belqasim as governor of the Central Bank of Libya, following an agreement between the authorities in the east and west. Belqasim, an experienced technocrat, previously served as an adviser to the ousted governor and held key roles within the bank, including director of the Department of Monetary and Banking Control and the Department of Studies and Research. His familiarity with the complex political dynamics, including the influence of armed groups controlling oil fields, positions him as a figure capable of navigating the challenges facing the Central Bank.

Despite his reputation as a “moderate” figure, Belqasim will face numerous challenges that extend beyond the traditional scope of a central bank governor. One of the foremost issues will be ensuring the equitable distribution of oil revenues across the various regions, a task complicated by the division of executive authorities that claim these funds. This challenge places the Central Bank in the role of regulating public spending, a responsibility typically assigned to the Ministry of Finance, which oversees budget allocations approved by the House of Representatives.

A further critical challenge will be the stabilization of financial flows from Libya’s oil exports. While oil production has recovered since Belqasim’s appointment, ensuring sustained production amid potential political disputes or security threats will be essential. Armed groups have historically used oil field closures as leverage to impose their demands on Libya’s divided political authorities, creating ongoing instability in oil revenue streams.

In the short term, Belqasim must also address the administrative issues resulting from the abrupt departure of the previous leadership. Without a formal handover, the bank has struggled with internal reorganization, leading to delays in disbursing public sector wages. These administrative disruptions, coupled with the earlier halt in oil production, have exacerbated a liquidity crisis due to the shortage of hard currency, adding further pressure on the Libyan dinar in the parallel market.

Looking ahead, one of Belqasim’s most critical tasks will be maintaining the Central Bank’s institutional unity and preventing a return to the division that previously split the bank into eastern and western entities. The unification of the Central Bank is relatively recent, achieved in August 2023 after nearly a decade of division since 2014. The recent leadership dispute has raised concerns about the potential for a renewed “monetary division,” which could severely impact the stability of Libya’s banking system and erode confidence in the local currency.

The Role of External Interventions

A key factor shaping the challenges facing Libya’s Central Bank is the influence of external interventions. Algeria has maintained firm support for the western-based government, providing intelligence coordination and military training. This stance is largely driven by Algeria’s strategic interest in keeping General Khalifa Haftar’s forces, which back the eastern government led by Osama Hamad, away from its eastern borders.

On the other hand, Egypt has taken a more pragmatic approach, supporting the Hamad government in exchange for lucrative reconstruction contracts in areas damaged by Hurricane Daniel. Meanwhile, Russia continues to foster a close relationship with Haftar’s forces, seeking investment contracts in eastern Libya’s oil fields. In response, the United States has focused its involvement on curbing Russian influence in Libya, even if that means exerting pressure on the Central Bank, which remains tied to transactions in U.S. dollars.

These external interventions contribute to the protracted nature of Libya’s political crisis, which in turn impacts the operations of the Central Bank. The bank will need to navigate this geopolitical complexity, aligning its strategies with the country’s ongoing political division to mitigate the impact on Libya’s monetary and financial stability.

American pressures, particularly in contrast to Russia’s growing ties with Haftar, present a long-term challenge for the Central Bank. Until Libya’s political institutions are unified under a leadership capable of establishing a balanced and independent foreign policy, external pressures will continue to complicate the bank’s efforts to maintain stability.

Meanwhile, the Libyan dinar’s value in the parallel market has plummeted to 8 dinars to the dollar, compared to the official rate of 4.7 dinars. These issues highlight the pressing economic challenges that the new Central Bank leadership will need to confront.

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