Benghazi – Libya is currently facing a severe financial crisis. This reflects deep structural imbalances in public finance management. Oil exports continue, generating revenues. These revenues should alleviate economic pressures. However, the Central Bank of Libya has failed to address the escalating financial deficit. Poor coordination between monetary and fiscal policies has complicated the economic landscape. This increases risks to the national currency reserves.
Abd al-Rahim al-Shibani is the head of the Libyan Academy for Governance. He is also an economic expert. Al-Shibani explained the situation. The Central Bank of Libya relies on drawing from cash reserves to cover deficits. This policy began under the current governor, Naji Issa. This marks a clear shift from previous policies. Former Governor Sadiq al-Kabir adopted a more conservative approach. He mandated governments to adhere to approved budget ceilings. This aimed to protect and ensure the sustainability of reserves.
Al-Shibani further stated the core of the crisis. It lies in the structure of public spending. Salaries consume 60% to 70% of total government expenditures. This unsustainable spending pattern limits resource allocation for development and investment. Conversely, public revenues suffer a deficit. This deficit ranges between 30% and 50%. It stems from near-total reliance on oil. Weak diversification of income sources contributes. Smuggling and production fluctuations are also factors. Institutional division hinders efficient financial collection.
A highly dangerous factor exacerbates these imbalances. This is the continued excessive spending on letters of credit. These credits import non-locally produced goods. The Libyan consumer market is flooded with dozens of varieties of a single imported product. These are sourced with hard currency from various countries. This import pattern only benefits foreign economies. It leads to a continuous drain on foreign currency. There is no corresponding developmental impact or local added value. It also thwarts potential for national industries. Simple assembly activities are also affected. This fosters a culture of consumption over production. It increases economic fragility. It deepens the balance of payments deficit.
Comparing Libya’s situation with other oil-producing nations highlights a key issue. The problem is not resource abundance. It lies in weak governance and poor spending direction. Many oil-rich countries have successfully controlled imports. They encouraged local production. They utilized oil surpluses through sovereign funds and long-term investments. Libya, however, remains unable to build an effective resource management system. This exposes it to crises with any decline in revenues.
Al-Shibani noted the Central Bank’s current monetary policies. These policies attempt to narrow the financial gap. However, their impact remains limited. This is due to a lack of genuine financial reforms. Spending continues outside the budget law framework. He emphasized that the budget law is more than a spending tool. It is an essential oversight instrument. It ensures transparency and accountability. He warned that this approach could deplete currency reserves in less than a year.
This crisis directly impacts citizens’ lives. Public services are declining. Prices are rising. Purchasing power is eroding. Al-Shibani called for urgent action. Civil society, oversight organizations, and specialists must exert pressure. They should push for comprehensive reforms. These reforms include unifying financial institutions. They also involve controlling letters of credit. Gradual restructuring of the salary item is needed. Non-oil revenues must be boosted. A clear policy for rationalizing imports and supporting local production is essential. This will protect national reserves. It will ensure the stability of the Libyan economy in the medium and long term.