Libya devalues currency as public spending soars

The Central Bank of Libya (CBL) devalued the dinar on April 6 as declining oil revenues and spending by the country’s two rival sets of authorities had caused it to draw down its foreign exchange reserves.

The bank announced on a Facebook post that it was devaluing the dinar by 13.3% against foreign currencies. The currency, it said, was now worth 5.56 dinars against the dollar, from the previous 4.48 dinars. 

In a separate statement released on the same day, the CBL said spending by Libya’s two rival sets of authorities had increased the supply of money in the economy. This, it said, had raised demand for foreign exchange, put pressure on the exchange rate, increased inflation and threatened confidence in the currency.

The central bank said declining oil revenues had left it unable to provide foreign exchange for spending by the two rival factions – the government based in the capital Tripoli and the parliament based in the eastern city of Bayda. Proceeds from oil exports had dropped to $18.6 billion last year, compared with $20.7 billion in 2023.

The CBL said this had led public debt to hit 270 billion dinars ($48.6 billion). It said the figure would rise to more than 330 billion dinars by the end of this year if spending continued at its current level. Libya’s public debt rose to 95.75% of GDP in 2024, when its total output was $46.74 billion.

“The situation would become even more critical in the event of a decline in oil production and export rates due to any changes, or a deterioration in global oil prices,” the bank said. Oil prices have declined in recent weeks owing to US tariffs and production increases announced by oil-exporting countries.

The CBL said it was not sustainable to keep using FX reserves to finance public spending. It added that it had been “compelled to… reconsider the exchange rate amid the absence of any hopes or prospects for unifying the dual spending between the two governments”.

Naji Mohamed Issa became the bank’s governor last September. Previously, the two factions had come to blows over his immediate predecessor Sadiq al-Kabir’s perceived friendliness to the authorities in Bayda.

Claudia Gazzini, a senior Libya analyst at the International Crisis Group, tells Central Banking that the CBL has been “quietly also funding the eastern government” since Kabir’s time as governor. This means “annual expenditures are way higher than what the budget says. And the central bank is starting to say: ‘Folks, we can’t do this any longer because the revenues are disproportionately lower than actual expenditure’ ”.