Libya is a rich, large country. It is among the few countries in the Arab region and the world which are not indebted to international or regional financial funds. The most important is that its population, as compared with other oil producing and exporting countries, is considered small, not exceeding 6 million. Before the political change, Libya’s reserve amounted to $165 billion, and its annual oil returns were $60 billion.
These reserves, however, are being gradually eaten away, while the gold reserve volume was never announced. The reason behind this is the decline that revenues witnessed as production decreased from 1.6 million barrels per day in mid-2012 to less than 300,000 barrels per day due to unrest and protests that took place in the main oil facilities, leading to the shutdown of prominent oil ports despite signs of a solution looming on the horizon. Also, refinery stations were rendered dysfunctional, which led Libya to import fuel. This comes in addition to the oil smuggling operations that have been going on for three years.
Recently, the Libyan government encouraged the central bank to use money from a special reserve fund that comprises billions of dollars accumulated through previous oil sales. The aim was to help compensate for the large loss of oil revenue due to the decrease of production and subsequently exports. This has almost paralyzed the general finance of the country.
It is expected that the central bank will ask the Supreme Court to clarify the regulations according to which it will be legally bound to free amounts from the reserve fund. Retired Gen. Khalifa Hafta and his allies, however, completely refuse and question this procedure. They consider that it is a continuation of the irresponsible usage of the state’s money. Prime Minister of the caretaker government Abdullah al-Thani affirms that the decrease in oil revenues has led to the loss of many developmental projects and impeded the paying of state employees' salaries for more than two months, sparking large protests in Tripoli and other large cities. It has also caused lax security, threatening stability in Libya and pushing armed groups, which the government had used to secure state facilities, to encircle the central bank and some local banks to protect allocations that had been ratified by previous governments.
All these factors made it crucial to resort to the reserve fund that was founded 20 years ago. However, despite governmental pressures, the central bank is holding on to its stance because the money in this fund should be preserved for generations to come and should increase, not decrease. New ways must be found to increase oil production and exports as well as revenues, which plummeted to less than one quarter of what Libya used to make.
Central bank statistics show that the reserves decreased from $130 billion to $100 billion in 2013, knowing that a part of these reserves is deposited outside or invested in foreign assets such as stock shares or investment portfolios. This encouraged the governor of Libya’s central bank, Sadiq Abd al-Kabir, to refuse to use foreign reserves because, as he said, if they decreased in the upcoming months, the general finances of Libya would be in danger. This would make it hard to borrow money from international financial markets, regardless of Libya’s other capabilities and non-oil resources, such as fishing, agriculture, mines and petrochemical industries.
Amid disputes over using the reserve, former PM Ali Zaidan spoke of around $200 billion of Libyan money being frozen outside the country. This issue was brought up during his visit to the US before he resigned and took asylum in Germany. Back then, the International Monetary Fund promised to raise the issue of retrieving the frozen Libyan money before the Security Council. On the other hand, the IMF imposed some conditions on the Libyan government: taking positive measures regarding human rights and security, moving the economy forward and bringing oil revenues back to their normal rate of 1.6 million barrels per day.
One can say that Libya could be quickly moving toward financial collapse if the security and political situation is not tackled and common denominators between disputing powers are not found on the basis of reinforcing stability in order to get the economy into motion again. It is important not to use the money from foreign reserves deposited in the central bank, which seems unlikely to happen in the near future.
The central bank took the initiative to try to save what can be saved and avoid the expected financial collapse if the situation remains as is. It proposed issuing Islamic bonds to fund the 2014-2015 budget deficit and to compensate for the oil revenue losses, which could result in a $25 billion deficit if the new budget were fully implemented. The management of the bank, however, is still negotiating with the government, which has yet to specify its stance.
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