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Al-Kabir sends lengthy letter to Al-Dabaiba

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Tripoli, February 27, 2024 (LANA) - The Governor of the Central Bank of Libya, “Al-Siddiq Al-Kabir,” stressed that the Central Bank will work to preserve the financial sustainability of the state in every possible way, whether individually or in cooperation with the rest of the state institutions, based on its national duty and responsibility to the nation and the citizen, calling on everyone to work together and adopt the necessary economic and financial policies to get out of this frightening crisis.

This came in a lengthy letter addressed to the head of the National Unity Government, Abdel Hamid Al-Dabaiba, in response to what was stated in his speech at the celebration of the anniversary of the February 17 Revolution. It included points related to financial conditions, the exchange rate, and salary increases, which are sensitive points, and since the Central Bank of Libya is the economic advisor to the state. In accordance with applicable legislation.

In his letter, Al-Kabir drew the Prime Minister’s attention to agreeing with him that Libyans have the right to live a decent life and to receive salaries that guarantee a decent living. However, this cannot be achieved without improving the management of financial resources, while ensuring the sustainability of that decent life, and that this cannot be achieved without improving the management of financial resources. Noting, that oil is the only source of income for the Libyan state, which finances the general budget by more than 95%.

  Addressing Al-Dabaiba, “Al-Kabir” said, “You mentioned the desire for the price of the dollar to be 1.3 dinars, but the desire alone is not enough to achieve this, as the actual practices of successive governments were the opposite of that, with the ill-considered expansion in public spending over the past years, especially consumer spending, which accounts for more than 95% of the general agreement, salaries alone constitute 60% of public spending, as salaries jumped from 33 billion dinars in 2021 to 65 billion in 2023, and the support item rose from 20.8 billion in 2021, including fuel subsidies to 61 billion during the year 2022, and it is expected to exceed 61 billion dinars in the year 2023, including 41 billion dinars for fuel subsidies, which are growing remarkably and depleting approximately 8.5 billion dollars annually, not to mention the other support expenses that are directed to the electricity sector directly at a value of 40 billion dinars, bringing the total Direct and indirect support expenses reached 102 billion dinars annually, and here we wonder how Chapter Four expenses jumped from 20.8 billion dinars, including fuel subsidies, in 2021 to 61 billion dinars in 2022, which confirms the existence of an imbalance, distortion, and mismanagement in fuel subsidies.

The Governor of the Central Bank of Libya explained that the state spent approximately 420 billion dinars from 2021 until the end of 2023, most of which was directed to consumer expenditures at the expense of development spending, which caused pressure on the exchange rate of the Libyan dinar.

He said, “In your speech, you referred to increasing salaries and providing more grants, as expanding spending may satisfy some groups in the short term, but it contradicts the principles of financial sustainability and guaranteeing the rights of future generations, which is what rational management of public funds requires,” wondering who will provide the government to finance these increases, especially in light of the decline in the volume of expected revenues for the year 2024, to the level of 115 billion dinars, according to National Oil Corporation estimates, and 5 billion dinars in other sovereign revenues, with a total of 120 billion dinars.

Al-Kabir warned in his message that continuing with the same financial policies will make the matter more complicated and result in a certain deficit, which requires working together to take policies to avoid deficit financing. He pointed out in the same context that the expansion of parallel spending of unknown origin has directly affected the increase in the demand for foreign exchange in the last months of 2023, which resulted in an increase in the parallel exchange rate despite the pumping of $5 billion more than in 2022, and the move from an exchange rate of 1.3 dinars to the dollar to 4.85 dinars to the dollar was not an option for the Central Bank, but rather was the result of successive crises. Since 2013, due to the arbitrary closure of oil, which caused the Libyan state a loss of about 150 billion dollars, accompanied by a defect in financial and trade policies, a state of political and institutional division, the growing pace of public spending, and the adoption of a deficit financing policy, which led to a rise in public debt and an exacerbation of the deficit in the balance of payments, which depleted part of it. A large amount of the state's foreign exchange reserves, and there was no option to achieve balance and preserve what remained of the first line of defense foreign exchange reserves except by reducing the value of the Libyan dinar against foreign currencies.

He explained that this step achieved its goals and brought about clear stability during the years 2021 and 2022 at the macroeconomic level, balance in the general budget and balance of payments, and stability in the exchange rate of the Libyan dinar. However, the government continued to significantly increase the level of public spending, reaching the level of 165 billion dinars in 2023, and the existence of an agreement. with an anonymous parallel source. All of this contributed to the increase in the volume of demand for foreign exchange despite the Central Bank increasing the volume of supply of foreign exchange by $5 billion compared to 2022, which amounted to $16 billion, accompanied by stability in demand and in the parallel exchange rate compared to $21 billion. During the year 2023, it was accompanied by an increase in demand and an increase in the exchange rate since the fourth quarter of the year 2023, pointing out that the increase in demand for foreign exchange began in the last quarter of the year 2023, which made the task of the Central Bank difficult to defend the current exchange rate of 4.85 dinars to the dollar. How can the exchange rate be 1.3 dinars to the dollar, according to your statement, in light of these data, the most important of which is the volume of public and parallel spending, and the volume of money supply, which reached 160 billion dinars, except by depleting the reserves of the Central Bank and resorting to assumptions from international institutions, which is not an easy matter, and undermines the sovereignty of the state and its stability.

Al-Kabir stated in his message that the process of getting out of this frightening crisis requires stopping parallel spending from unknown sources, approving a unified budget for the entire Libyan territory, rationalizing spending in a way that preserves the state’s reserves and the rights of future generations, diversifying sources of income, strengthening the role of the private sector, and reducing dependence on imports. Foreign consumption of consumer goods exceeded 80%, increasing oil production and exports in the near and medium term, and making the priority of spending to invest in comprehensive development.

The Governor of the Central Bank of Libya concluded his message to the Head of the National Unity Government by saying that these fundamental facts must be stated, and as a matter of bearing historical responsibility and fulfilling the trust, the matter necessitates the necessity of working hard to get out of the crisis and reach the decent and sustainable living to which we all aspire.