Husni Bey
A Dispute Over Who Bears the Cost of Economic Adjustment — the Treasury, the Reserves, or the Dinar?
The resignation of the Governor of the Central Bank of Libya, Naji Issa, submitted to the Speaker of the House of Representatives on 9 August 2026, has reopened one of the most sensitive questions facing the Libyan economy:
Is the problem fundamentally one of monetary-policy management, or has the Central Bank reached the point where it can no longer contain imbalances originating primarily in public finances, energy subsidies, and the way oil revenues are managed?
The resignation letter itself does not state the reasons. It simply apologizes for being unable to continue serving as Governor, “without stating the reasons.” It would therefore be professionally inappropriate to claim that any single economic file was the direct cause of the resignation.
However, the developments that preceded it, the correspondence surrounding the dispute over (the US-mediated) Unified Public Spending (agreement), the Governor’s public positions, and the warnings issued by the International Monetary Fund all reveal two intertwined economic conflicts that help explain why the Governor’s task had become increasingly difficult.
In that sense, the resignation may be less about a personal disagreement and more about a broader reality: Libya’s current model of economic management may be approaching the limits of its sustainability.
The First Conflict: Who Controls Spending — and Who Finances What the State Can No Longer Afford?
The first problem is fiscal before it is monetary. Libya earns most of its public revenues from oil and gas, meaning in foreign currency, while most government expenditure is made in Libyan dinars.
This places the Central Bank at the unavoidable intersection between the two: oil generates dollars, while the Central Bank converts those dollars into dinars that the government can spend.
In April 2026, an agreement was announced on Unified Public Spending of approximately LYD 190 billion, including around LYD 73 billion for salaries, LYD 37 billion for subsidies, LYD 40 billion for development, LYD 18 billion for family allowances, LYD 10 billion for operating expenditure, and an additional LYD 12 billion for the National Oil Corporation.
But the agreement did not end the dispute.
In June, the Chairman of the House of Representatives’ Unified Spending Committee sent a letter to the Governor warning that the House might consider itself released from the commitments associated with the agreement if what it described as obstruction of implementation continued.
This reveals the nature of the first conflict. The political authorities view the Central Bank as the institution that must provide the financing, while the Central Bank sees itself as the institution that must prevent public spending from turning into a permanent drain on foreign currency and reserves.
Government spending does not end when a cheque is issued in dinars. In an economy that imports most of what it consumes, a significant share of those dinars eventually returns to the Central Bank as demand for foreign currency.
Every additional billion dinars spent by the state is therefore not merely an accounting entry in the Treasury’s books. It can translate into additional demand for imported goods and dollars.
This is precisely the concern repeatedly raised by the IMF:
Persistently high public expenditure increases pressure on the exchange rate and foreign reserves and, if continued without adjustment, becomes unsustainable.
The question, therefore, is not simply: “Does the Central Bank have dollars?” The more important question is: How many dollars can it sell every year without beginning to finance a level of public spending and consumption that continuously exceeds the economy’s capacity to generate resources?
Fuel and Energy Subsidies: The Hole Connecting the Fiscal Crisis to the Dollar Crisis – Fuel lies at the heart of this dispute.
The Libyan state does not subsidize petrol, diesel and electricity only in dinars. A very large part of the subsidy is effectively paid in dollars through the importation of fuel or through the domestic consumption of products that could otherwise have been exported and monetized.
The cost of fuel subsidies therefore has two dimensions: a fiscal cost, reflected in public spending and subsidies; and an external cost, reflected in the depletion of foreign currency. The wider the gap between the near-free domestic price of energy and its true economic cost, the stronger the incentive for smuggling, diversion and resale outside official
This is why fuel reform is not merely a decision about the price of a litre of petrol. It is simultaneously a decision about: the dollar, foreign reserves, public expenditure, smuggling and the exchange rate.
The dilemma confronting the Central Bank can be described in simple terms. The state sells oil and receives dollars. It then uses a substantial part of those dollars to import fuel, which is sold domestically at prices far below its real cost. Part of that fuel may then leak into smuggling networks.
At the same time, the Treasury requires ever more dinars to finance salaries, subsidies and other public expenditure. In effect, the state can find itself selling energy for dollars, buying energy back for dollars, and simultaneously creating the dinar counterpart needed to finance the rest of public expenditure. That is a cycle that monetary policy alone cannot close.
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