The Central Bank of Libya recently reassured all Libyans worried about the breakdown of the country’s national economy and the collapse of the dinar’s exchange rate that such an eventuality would never occur as a result of the bank’s large reserves in foreign currencies, valued at $113 billion, bolstered by an additional 116 tons of gold.
However, the International Monetary Fund (IMF), which confirmed that Libya possessed important reserves that would help it overcome the crisis in the short term, also warned of the imbalance seen in oil production, and the increase in expenditures, which would drain those reserves in less than five years.
In this regard, the director of the Libyan Stock Exchange, Misbah al-Akkari, stated that available liquidity surpassed 4.6 billion dinars ($3.8 billion), both inside and outside the country, with state accounts holding more than $110 billion abroad. But, according to him, the problem still revolved around the ability to move required liquidity from the central bank to commercial banks as lawlessness continued to spread.
While insurance companies refused to cover the transport of funds, the central bank’s governor, Saddek Elkaber, used his personal contacts to secure such coverage for the bank’s headquarters. However, he explicitly indicated that insuring the transfer of money from Tripoli’s Mitiga Airport to the central bank would cost $2.5 million.
Hence the difficulty of the banking sector operating in such dangerous security conditions, following the spate of armed robberies targeting money transport vehicles and bank branches, leading to great confusion in the process of supplying banks with liquidity, particularly those located in remote areas or regions suffering from insecurity. In addition, many bank employees were the victims of attacks in a country where 42 different commercial banks operate a network of branches spread throughout Libyan territory.
In the face of these developments, the central bank was compelled to refrain from supplying banks with liquidity — in particular hard currencies — leading to a monetary crisis and shortages in the availability of dollars in some sectors of the economy, which contributed to the weakening of the dinar.
As fear and panic spread, Libyans flocked to withdraw deposits in dinars and foreign currencies, for fear of further outbreaks of fighting. Some businessmen even warned of a repeat of certain scenarios, when deposits worth $20 billion were withdrawn as the revolution erupted in 2011, forcing Libya to sell the equivalent of $5 billion worth of gold just to maintain fiscal stability.
The production of crude oil, considered to be the main driving force behind Libya’s economy, declined as a result of the same security considerations in a number of export ports, with oil accounting for 95% of GDP, 96% of exports and 98% of state treasury revenues. As a result, Libya suffered a $30 billion loss over a period of 10 months, engendered by a decline in oil production from 1.4 million barrels per day in July 2013, to 200,000 barrels per day as of May 2014, with the decrease continuing unabated.
According to the central bank, the country’s revenues fell from $4.6 billion to $1 billion per month at a time when Libya was spending the equivalent of $3.6 billion per month. Furthermore, to cover this deficit, the country was forced to pay $19 billion out of its foreign currency reserves, which dropped from $321 billion before the crisis to $113 billion today.
Hopes were hanging on the success of economic activities in 2012, but 2013 proved to be disappointing, when unrest began spreading unabated since July, leading to the suspension of most investments, particularly those revolving around state expenditures to finance projects, as a result of the decline in oil revenues.
Before the revolution, foreign investments in Libya were estimated at $3.8 billion, which greatly waned in 2011 only to strongly recover after the revolution’s success and the return of foreign delegations that restored hope in the revival of the country’s economy. In this context, China reinitiated operations, with approximately 26 companies implementing 50 projects worth $19 billion in various sectors that include real estate, oil and communications. Furthermore, 13 out of 25 Austrian companies present in pre-revolutionary Libya resumed their operations while French, British and Canadian delegations visited the country to prospect for business in the oil, health and construction sectors. Also, to meet project implementation needs, the labor market witnessed great demand for a labor force that flocked to Libya from all corners of the globe, especially Arab countries.
Subsequent developments could easily lead to an economic collapse, yet hope revolves around the ability of the government and militia leaders to reach an agreement that would alleviate the repercussions of such a collapse. In this regard, the IMF expressed optimism that Libyan economic activity could recover if oil and gas production returned to its previous level of 1.7 billion barrels per day, thus ensuring the availability of sufficient liquidity to pay state expenditures, as well as finance investment and reconstruction projects. The IMF further noted that the energy sector alone is in need of $30 billion to achieve its full potential, not to mention that airports, the health sector, infrastructure, communications and tourism all require billions of dollars in development funds.