An economic report described Libya’s budget unification. It was published by the Qatari website Al Jazeera Net. The report called it a significant financial transformation. It aims to enhance financial discipline. It will also rationalize expenditures. This step is considered the most important in over 13 years. Officials view it as a gateway to exchange rate stability. It could also improve economic indicators. Economists see it as a true test. It will test Libyan institutions’ ability to manage public funds uniformly.
The report, followed by Al-Marsad newspaper, clarified this test. Institutions must transition from division. They must also move from resource sharing. They need to adopt unified public fund management. Libya has been exhausted by dual authority. Years of government division also burdened it. This directly impacted public finances. It affected local currency performance and prices. Liquidity and private sector confidence also suffered.
The Unified Budget and Ending Parallel Spending Tracks
The report stated that the absence of a unified budget was not just an administrative or technical flaw. Over past years, it became a major source of economic instability. Two governments and multiple decision-making centers existed. This led to duplicated spending. It created parallel disbursement tracks. This widened the gap between public revenues and expenditures. Libya’s economy primarily relies on oil. Oil covers most of its financial needs.
The new agreement’s importance stems from its attempt. It aims to consolidate public spending within one framework. This framework includes salaries and operational expenses. It also covers subsidies and development allocations. This will reduce the fragmentation. Public fund management suffered from this fragmentation for years.
Al-Suleh: Agreement Success Linked to Spending Discipline
The report quoted economist Ali Mansour Al-Suleh. He said the agreement essentially represents a plan. It unifies public expenditures. It distributes them between consumption and investment aspects. This is based on the consensus reached by various parties.
Al-Suleh emphasized the unified budget’s effectiveness. Its measure is not mere announcement. It depends on parties’ commitment to spending control. They must not exceed these limits. Any spending outside this framework is a direct violation. It breaches the agreement’s foundation. It also violates economic discipline principles.
He added that the announced or projected expenditure volume. It is still larger than the equilibrium level. This is the appropriate spending level. It aligns with state revenues. It avoids deficit or inflationary pressures. However, he believed the agreement might still help. It could control public spending. It could also manage foreign currency uses in the coming period.
Potential Repercussions on Exchange Rate
Al-Suleh continued by stating budget unification could create more market certainty. This concerns the exchange rate. The exchange rate is significantly determined by aggregate demand. Public expenditures are a primary component. With clearer spending volumes, estimating optimal spending becomes possible. It allows for a more precise exchange rate determination. This applies to both the Central Bank and parallel markets.
He noted that this path also depends on oil revenues. It also relies on the state’s ability to boost foreign currency reserves.
Al-Sharif: The Step Reduces Instability but is Not a Magic Solution
The report quoted Ali Al-Sharif, an economics professor at Benghazi University. He said budget unification strengthens financial discipline. It curbs parallel spending. This eases pressure on the exchange rate. It also reduces market instability. This instability has plagued the currency market for years.
Al-Sharif explained that dual spending led to uncovered expenditure expansion. This increased demand for foreign currency. It also deepened the fiscal deficit. Transparency and accountability were weakened. Ultimately, this impacted the stability of the Dinar.
He added that the agreement is not a magic solution. It will not automatically restore the Libyan currency’s strength. However, it is a step that can help reduce economic instability. Revenues and expenditures will become clearer. This might alleviate market confusion. It could enable the Central Bank to manage foreign currency better. Risks associated with political tensions and oil price fluctuations remain.
Prices and Inflation at the Forefront of the Test
The report indicated that prices and inflation remain highly sensitive issues for citizens. Libyans do not measure financial agreement success by texts or committees. They assess it by its ability to ease daily pressures. These pressures include rising prices. They also include declining purchasing power and currency fluctuations.
Al-Suleh linked price stability to the Central Bank’s role. This role involves managing liquidity and the money market. He considered the current phase an opportunity for monetary policy. It can leverage this agreement for better liquidity management. This might allow for money market control. It could also achieve a degree of overall economic stability.
Conditions for Agreement Success and Impact on Investment
The report clarified the positive macroeconomic impact. It also noted the broader scope for monetary policy. These remain subject to several conditions. First, no resort to printing money for spending. Second, no accumulation of debt beyond the state’s repayment capacity. Third, the Central Bank’s ability to control liquidity. This must align with real resources.
He pointed out that the absence of these controls could undermine the agreement’s goal. It could transform from a tool to curb inflation. Instead, it would become a factor increasing price pressures. This is due to continued high spending.
The report added that the step holds significant importance for investment. This is due to the messages it sends domestically and internationally. Local and foreign investors consider clear public finances. They also look at exchange rate stability. Institutional cohesion is another key indicator. These are crucial before deciding to inject funds or expand activity.
Al-Sharif affirmed that transparent public finances can signal stability to investors. It can reduce risk premiums. It supports private sector activity. This is through more stable expectations for taxes and spending. It also applies to the exchange rate. However, he stressed this potential improvement depends on transparency. It also relies on effective oversight. Oil production must continue away from political tensions. The unified budget must not become a mere framework. It should not just distribute resources among competing power centers.