Libya’s cash crisis worsens three years into civil war
Tunis - There is a joke in Libya that if you write your name on a banknote and spend it, it is likely to come back to you within a week. Such is the extent of the country’s cash crisis, which has gone from bad to worse in the once oil-rich state.
The liquidity shortfall, attributed to a lack of stable oil revenue, unregulated market activity and increased public expenditures, has hit regular citizens the hardest. Those who once enjoyed generous government benefits and public resources under former leader Muammar Qaddafi now line up for hours to withdraw small sums from banks. Some struggle to buy food and basic goods.
“People are unable to get money from their accounts,” Anas Almansuri, a Libyan software engineer in Benghazi said in a telephone conversation. “Even if they have plenty of money, the bank won’t give it to them. There’s simply not enough.”
“The maximum you can withdraw is around 300 dinars ($212),” said Libyan journalist Ala Drissi, who was also reached in Benghazi by telephone. “Sometimes it’s even less and with food prices skyrocketing — a gallon of milk now costs 10 dinars ($7) — you can imagine how long this lasts.”
For Libyan university student Ibrahim Albadri, the crisis might cost him his education. Albadri, a junior at Kent State University in the United States, has been unable to pay his college tuition for a year after the government failed to approve his international monetary transactions. If the issue is not resolved, Albadri’s student visa will be revoked and he will be forced back to his hometown of Tripoli.
“The idea of having the money but I can’t reach it kills me,” Alabdri said to kentwired.com.
Such financial restrictions are not limited to any one area of Libya, which is embroiled in a fierce conflict between an array of competing factions and militias. Cash reserves have dried up in both Tripoli and Benghazi, where frantic customers can be seen clustering around banks for hours. “Some even sleep in the streets,” Drissi said.
“What’s happening in Libya is not unique,” Drissi explained. “Cash crises have happened in every country that has undergone a similar conflict. The first thing people do is get their money back from the banks, which causes a lack of cash.
“The problem is that banks cannot print new cash.”
As a result, Libya’s financial institutions have begun printing and importing currency from overseas, principally from the United Kingdom.
In 2016, however, Libya’s eastern government in Tobruk, loyal to Field Marshal Khalifa Haftar, brought in billions in currency from Russia. The notes, which had distinct serial numbers, security details and watermarks, were accepted “without objection in Tripoli,” the Libya Herald reported, despite the Central Bank’s insistence they were not valid and the United States regarding them as “counterfeit.”
The country’s financial shortfall has taken a particular toll on local businesses, which struggle to operate with minimal cash. Some of them have resorted to using e-payment services that allow customers to complete purchases with wire transfers. This has become a popular method of payment for cash-strapped citizens but is not a sustainable option for most small or medium-sized enterprises.
For Libya’s well-connected, foreign currency can be traded on the black market where the value of dollars and euros is far above prices on the international trading market. Last April, the Libyan dinar traded at 8.3 to the US dollar on the parallel market, compared to 1.4 to the dollar on the official market.
The official exchange rate has been criticised by foreign leaders and international financial institutions, who have been urging Libya’s UN-backed government in Tripoli to devalue its currency. While Tripoli’s central bank has thus far held off, the pressure is likely to mount as long as the conflict continues and oil revenue fails to make gains.
“Libya will have to undergo a devaluation of its currency eventually; the question is when and under what political circumstances,” wrote Jason Pack in Al-Monitor.
While Pack noted that “daily life under devaluation would be sky-high prices, continued lines outside banks and looting,” it would be implemented to “keep the oil revenues and currency reserves stable and hence combat the liquidity crunch of the public sector,” he said.
For now, however, the measure remains unpopular in Libya, where many are still holding out hope for a political settlement.
“The situation is bad,” said Drissi, “but it’s not Somalia yet.”
Libya has been ensnared in a fierce civil conflict since 2014, with the internationally recognised government in Tripoli, led by Fayez al- Sarraj, battling the renegade General National Congress (GNC) for control of territory in the west, and the Tobruk government, allied with Haftar, making gains in the east.