Libya expects to end a long-running liquidity crisis by early 2019 as a foreign currency tax helps the official and black market exchange rates converge at less than 3 dinars to the dollar, the Tripoli-based deputy prime minister said. The chasm between the two rates has enabled armed groups and their allies to reap vast profits to fund the conflict that has engulfed Libya since 2011, when a NATO-backed uprising overthrew Muammar Gaddafi after more than four decades in power.
Meanwhile ordinary Libyans, reliant on imports of everything from milk to cars, have seen living standards crumble. Since 2014, Libya has had competing governments aligned with rival armed factions based in the capital Tripoli and the east.
The internationally recognised Tripoli government hopes its currency reforms will help restore confidence in the economy and chart a way out of the turmoil by putting the armed groups out of business, a main goal of UN efforts to stabilise Libya.
Asked when the liquidity situation in the banks would be normalised, Ahmed Maiteeg told Reuters: "By the beginning of February, beginning of next year, it will be part of the past." Once the rates converge and the supply of dinars and dollars is freed up, Libya will begin reducing fuel subsidies that cost the state up to $5 billion last year and have led to rampant smuggling to neighbouring countries, Maiteeg said.
He also said state oil firm NOC, which has struggled to maintain oil fields amid funding shortages and blockages by armed groups, would get a development budget of $1.8 billion in 2019, as the wheels of the economy start turning with the flow of dollars. Other development projects would also be restarted.
Between 2014 and 2017, the dinar fell by as much as 600 percent on the parallel black market, which has become the widely used benchmark, as oil production see-sawed and trust in the banking system collapsed. The official rate, used only by some state companies, has remained at 1.4 dinars.
To bridge the gap, the internationally recognised government in Tripoli slapped a 183 percent tax on commercial and private hard currency deals in September, bringing the effective official rate for such transactions to 3.9 dinars. Together with a new allowance that allows Libyans to withdraw up to $10,000 annually using a credit card, this has helped bring down the parallel rate to 5.30 from between 6 and 7 two months ago, according to dealers' rates seen by Reuters.
The government expects the black market rate to continue to fall as dollars continue to pour in from the card allowance and as more import letters of credit are opened. Spelling out details of the reforms for the first time, Maiteeg said Libya would nudge the effective official rate lower as the black market rate dropped.
"It will go down gradually until it reaches the break even or the right exchange rate," he said. Libya used a similar mechanism to devalue its currency in the 1990s. Maiteeg declined to give the future official rate, saying only that studies put a fair value at between 2 and 2.4 dinars. "Much depends on oil exports and actual internal demand."