Libya’s Central Bank Crisis: International Urgency Amid Economic Uncertainty

Wednesday 28 August 2024 - 11:00

The Libyan economy is at a critical juncture as a contentious dispute over the control of the central bank escalates, drawing urgent responses from both the United States and the United Nations. This power struggle, occasionally violent, poses a significant threat to Libya’s already precarious financial system.

The U.S. Embassy in Libya, under Ambassador Richard Norland, has voiced strong support for the UN’s call for an emergency meeting involving all relevant parties. The embassy’s statement highlighted that the ongoing conflict “undermines confidence in Libya’s economic and financial stability” and increases the risk of “harmful confrontation.” Particularly troubling are reports of arbitrary arrests and intimidation of central bank employees, which the embassy insists must be addressed with stringent accountability.

Central to the crisis is the dismissal of Sadiq al-Kabir, who had led the central bank for 20 years. The UN-supported institutions in western Libya, led by Abdul Hamid Dbeibah, have shown no intent to reverse their decision to replace Kabir with new leadership. This shift has serious ramifications, given the bank’s critical role in the Libyan economy. The bank not only controls the two main commercial banks but also holds $27 billion in reserves, largely derived from oil revenues.

Newly appointed interim deputy governor Abdel Fattah Ghaffar held a press conference in Tripoli, asserting his capability to tackle the current liquidity crisis, clear overdue salaries within days, and ensure accountability to a board of governors. Nonetheless, Ghaffar’s request for Kabir to relinquish essential secret codes necessary for processing payments highlights the practical difficulties in transferring control of the bank’s operations.

Complicating matters, the rival eastern administration opposes Kabir’s removal and has threatened to halt all oil production and exports, citing “force majeure.” This action impacts roughly 90% of the country’s oilfields and terminals, potentially delivering a severe blow to Libya’s main revenue source.

Kabir has reported that the bank has been unable to operate for two consecutive days due to militia threats and the kidnapping of four staff members. He warned that salaries for August might be at risk of non-payment. Additionally, Kabir claimed that the bank’s email systems had been illegally suspended by those attempting to oust its leadership.

This crisis is part of a broader, decade-long struggle over state resources within Libya’s fractured political elite. The ongoing conflict has repeatedly delayed nationwide elections since 2014, as various factions fear losing their access to Libya’s substantial oil revenues.

International bodies, including the IMF and Western nations, have long criticized the central bank’s lack of accountability. However, they oppose the unilateral manner of Kabir’s removal, concerned it may hinder efforts to unify Libya’s fractured financial institutions.

British Ambassador to Libya, Martin Longden, echoed these concerns, condemning “unilateral decisions that only destabilize the country” and underscoring the UK’s support for a legal resolution that preserves Libya’s international financial standing.

As the situation develops, the international community remains on high alert. The resolution of this central bank power struggle could have profound implications for Libya’s economic stability and its path to political reconciliation. With the country’s vast oil wealth at stake, the stakes for all involved parties are exceptionally high.