UN effort to reunify Libyan central banks hits problems

One faction demands governor’s replacement as civil war weighs on oil and banking sectors
Central Bank of Libya, Tripoli
Central Bank of Libya, Tripoli

A plan to reunify the central banks in civil war-torn Libya is facing difficulties, with one faction calling for the replacement of the Tripoli-based governor.

Sadiq Al-Kabir, governor of the Central Bank of Libya in the country’s capital Tripoli, is facing several other major problems. Al-Kabir is engaged in a public dispute with the head of the country’s powerful oil monopoly, while Libya’s banks are suffering severe liquidity shortages.

Libya has effectively had two central banks, each controlled by a different warring faction, since the country’s civil war recommenced in 2014. In March this year, the United Nations brokered a “government of national unity” between Libya’s warring factions, with an agreement to reunify the central bank.

Under a 2015 agreement, Libya’s high state council must consult the country’s house of representatives about the appointment of a central bank governor. The house of representatives moved to Libya’s east during the civil war but recently moved back to Sirte, roughly between the two rival factions’ capitals.

In late April, the house of representatives sent the high state council a list of 10 possible candidates for governor. But the list excluded Al-Kabir and all other serving central bank board members, according to a report in the Libya Herald.

Al-Kabir’s branch of the central bank functioned in the mainly western regions ruled over by the government recognised by the UN and most foreign states. He became central bank governor in October 2011, at the end of the first Libyan civil war, after the overthrow of the dictator Muammar al-Gaddafi.  

It is not clear how the government, led by prime minister Abdulhamid Dbeibeh, will deal with the house of representatives’ demand for a new governor. Severe tensions still persist despite the peace deal.

The Arab Weekly reported on April 27 that the eastern leader Khalifa Haftar refused to let Dbeibeh visit his territory for a meeting. The media outlet reported that Haftar’s forces had refused to allow the prime minister’s bodyguards to secure the airfield he was due to land at.

The UN and other international groups are currently trying to carry out an audit of the central bank. UN representative Jan Kubis met with Al-Kabir on May 3.

Eastern central bank

From the outbreak of the second civil war in 2014, the eastern-based faction has had its own central bank, led by Ali el-Hibri. This central bank functioned in the eastern provinces controlled by Russian-supported Haftar.

El-Hibri offered his resignation in March, when the government of national accord was created. He said he had reached retirement age, and that the central bank faced severe liquidity shortages and had no security against local gunmen. 

The Libya Observer said that on March 2, wounded veterans from Haftar’s army tried to storm the eastern central bank’s Benghazi branch. It is not clear whether El-Hibri has been able to retire from his duties.

The eastern central bank received banknotes printed in Russia, which strongly resembled those used by the western-based central bank. A large shipment of Russian-printed Libyan banknotes, worth approximately $1.1 billion, was seized by Maltese customs authorities in September 2019.

Conflict over oil and gas

The conflict in Libya is to a large extent driven by a struggle for control of the country’s oil and gas reserves. Most of Libya’s foreign currency and government revenue comes from oil and gas exports.

The country’s oil and gas reserves are mainly located in the east, but international agreements recognise the western-based National Oil Company as the only legal agency for exporting Libyan oil and gas.

All earnings from the NOC’s oil and gas exports are paid to the Central Bank of Libya, which in turn funds the oil monopoly. The head of the NOC, Mustafa Sanalla, publicly condemned Tripoli-based governor Al-Kabir for not releasing enough funds to the company.

Sanalla refused to reopen a key oil terminal last month as part of the dispute, the Arab Weekly reported on April 22. The NOC published a statement saying that the central bank had released only 2% of the operating funds it needed for the coming year.

“This announcement comes as a result of the Central Bank of Libya’s refusal to liquidate the oil sector budget for long months,” the NOC said. The Arab Weekly said observers believed there was “a bitter rivalry” between NOC chief Sanalla and central bank governor Al-Kabir.

Six days later, the NOC opened the terminal, praising “the rapid response” of the Libyan government in allocating more money to its operating budget. The Arab Weekly reported that the NOC said the new government had allocated it 1 billion dinars (approximately $200 million).

Al-Kabir warned in October 2020 that the civil war had led to major problems for Libya’s banks. On April 18, the CBL wrote off 5 billion dinars’ debt for commercial banks, or approximately $1.1 billion at official values, the Libya Observer reported.

The central bank is currently trying to implement a plan to improve the liquidity of the commercial banking system, the Libya Herald reported on April 19.

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