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By Sami Zaptia.
London, 7 October 2020:
The Central Bank of Libya (CBL) is Libya’s ‘‘first and last line of defence’’ in the country’s current economic crisis, Saddek El-Kaber, the Governor of the Tripoli CBL said.
The statement came during the four-hour questioning session before the (internationally unrecognized) Tripoli House of Representatives on Monday and Tuesday (5-6 October).
During his opening presentation the Governor criticised the internationally recognized Libyan government, based in Tripoli and led by Faiez Serraj, for its ‘‘very poor performance’’. He said that the oil blockade imposed by Khalifa Hafter and his allied forces and tribes was ‘‘a bullet to the head’’ leading to revenue losses of LD 180 bn.
He claimed that the current security, governance, and economic crisis in the country with the oil blockade, political split, the recent war on Tripoli, the Corona virus and widespread corruption, made it very difficult to run a normal economy. He added that if it were not for the wise governance of the Tripoli CBL, things would be much worse on a par with those in countries like Iraq, Yemen, Lebanon etc.
Governor El-Kaber said Libya needs oil production to return to pre-crisis rates of 1.7 million barrels per day at today’s prices in order to cover state outgoings.
He admitted that over 642,000 cheques had been rejected by banks at a value of LD 24 bn because of the lack of liquidity at banks caused by the oil blockade since January 2020.
He said political interference in eastern Libya in the activities of banks led to the Bank of Commerce and Development (BCD) providing a loan to Khalifa Hafter’s Libyan National Army (LNA).
He said the BCD had been used as a tool by the eastern political forces to buy up hard currency on the black-market through the use of discounted cheques which raised the dollar exchange rate on the black-market. This was one of the reasons the CBL had closed the clearance system with the east, isolating it from the main financial, banking and monetary system.
He said he was in discussions with western banks to find a solution to the closed clearance system.
On transparency, he said he welcomed any initiatives, local or international, for improvements.
CBL fallout with the Tripoli government
Governor El-Kaber said that his bank and the government need to continuously cooperate positively and be in contact to solve the current problems. However, he said this was not possible with the current Finance Minister and Acting Economy Minister, Faraj Bumtari, who he has clashed with publicly on numerous occasions.
Bumtari had made been very critical of the Tripoli CBL during TV interviews and in his earlier session with the HoR, including criticising CBL monetary policy for being too rigid. El-Kaber objected to being criticised publicly through the media.
El-Kaber said the Minister is ‘‘systematically exhausting the state’s foreign reserves’’ and lacks professional know-how and the working in groups skills. He criticised him for using unofficial media to damage the reputation of the CBL and to disseminate inaccurate facts and of being unable to respond accurately in his replies to the CBL on monetary issues.
El-Kaber accused the Tripoli Finance Minister of being ignorant of ,or turning a blind eye to, the facts such as the oil blockade as well as the illegal spending by the eastern government. He accused him of making the CBL seem the weakness in the Libya’s economy.
Meanwhile, the Finance Ministry had failed in its role in improving the country’s economy, he added. This included increasing non-oil revenues. Yet, he lamented, it increased spending every year to be financed by CBL reserves.
He said it ignored all the economic indicators such as the fact that 60 percent of economic activity is in the parallel or black-market – because of government economic policy.
He also accused the Finance Ministry of ignoring the real reasons for the failure of the CBL board to meet, which is the country’s political split and that a unified bank and exchange rate depended on the audit and political unity.
He pointed out government policy failure in the form of Libya having the largest state sector employees in the world at 30 percent.
The Governor also said using the instrument of the foreign exchange rate solely would not solve Libya’s economic problems. He said the high exchange rate was a result not a solution to the country’s economic crisis. Increased oil production and rationalized spending, however, are solutions.
He said the government’s economic policies had failed in general, failed to prevent spending by the eastern government and failed to reform subsidies.
He confirmed that he had officially referred the matter of the public accusations and criticisms by the Finance Ministry to the Attorney General.
Hitting back at the government’s criticism, El-Kaber also said that the current government had spent LD 181 bn from 2016 to 2020. Over LD 104 bn were spent on state-sector salaries, LD 26 bn on operational spending, LD 13 bn on development projects, but with most not reflected in projects in such as health. Subsidies received LD 30 bn, mostly on importing fuel paid for in hard currency. The emergency budget had received 8 bn.
The Governor also pointed out that the eastern and internationally unrecognized government had also spent LD 60 bn since the 2014 political split. Total spending was LD 241 bn for the period against LD 96 bn in oil revenues.
Proposed policy reforms
In a series of policy reform proposals to bring Libya out of its current economic crisis, the Tripoli CBL Governor called for the end of the country’s political split and the full resumption of oil production to 1.7 mbpd to enable the resumption of sale of foreign currency to Libyans.
He also called for the adoption of decentralization and regional development, transparency in all government organs and the rationalization of spending.
He called for an improvement in the efficiency of the government’s performance and a split of the government from the Presidency Council.
El-Kaber called for the adoption of subsidy reforms, which he said were delayed without good reason, the end of rampant corruption, the activation of the real estate registry and urban planning department, which he said were central to any economic development.
CBL accuses Civil Registry Authority of forgeries in its ID database
He was very critical of the Civil Registry Authority (CRA) for its inaccurate data which he said needed ‘‘cleaning’’. He said fake identities were being used to obtain foreign currency and issue fake passports to even foreigners. He said this problem is a threat to the country’s national security.
It will be recalled all Libyans hold a unique National ID Number used to issue passports, open bank accounts and distribute hard currency. This number is based on the data in the CRA. The CBL has had a run-in with the Civil Registry Authority on this issue for years.
It will be recalled that in February 2019, and in reply to CBL media allegations of forgeries in the CRA’s database, the CRA had stressed that the alleged forgeries of National ID Numbers is not as widespread as the CBL had claimed.
The Tripoli CBL Governor had announced that he had halted the payment of the Hard Currency Annual Allowance because of a large number of forgeries in the National ID Number database. The halt in the Allowance had caused a public uproar.
Government has not audited its accounts since 2007 over LD 600 bn of spending
The Governor also called on the government to audit its accounts from 2007 to 2020 which would reflect more transparency and accountability. This period represented LD 600 bn of spending which he held the Finance Ministry and Audit Bureau responsible for.
El-Kaber also called for an adjustment in policy leading to the increase in non-oil state revenues which he said had dropped by over 50 percent and increased the state’s oil dependency.
Ultimately, he called for an urgent meeting with prime minister Faiez Serraj in an effort to resolve the country’s economic crisis.
HoR critical of CBL Governor
After the lengthy presentation by the Governor and power-point presentations by several of his department heads, the Tripoli HoR members responded to their presentations, analysis, comments, and critiques.
The Tripoli CBL was criticised for failing to solve the foreign exchange rate problem, the liquidity problem, and failure to improve the poor services of its state-owned banks.
The Governor was accused of avoiding important issues in his presentation and not reacting to the crisis the country was in. He was reminded that all of Libya was dealing with a crisis and political polarization– not just the CBL.
The CBL was accused of using the oil blockade and political split over the last nine years as an excuse and, together with the Audit Bureau, was accused of making economic policy outside its authority, such as deciding the list of goods to be imported. He was told this was an unacceptable excuse for failing to find solutions to problems.
He was also blamed for insisting on the three different foreign exchange rates which cause the high black-market exchange rate prices.
In response to the liquidity problem, El-Kaber said that there is LD 53 bn in cash outside the banking system. He blamed this on the cancellation of interest payments (Law1/2013) by the previous parliament and government political, economic and security policy failure leading to a loss of confidence and cash hoarding. He, therefore, said the offer of sale of hard currency was the only tool to attract cash back to banks.
He claimed that if it were not for the CBL’s effort to protect the country’s reserves, Libya would be like Lebanon.
On the arbitrary decision to set a very limited list of goods open for imports, the Governor said in the crisis caused by loss of revenues due to the oil blockade, he had to prioritize.
He said sustainability was his concern and that things will get worse if the oil blockade is not fully lifted. He pointed out that due to the CBL’s independence the international community did not freeze Libya’s overseas assets.
Regarding poor banking services, he said the banking sector needs the activation and reform of banking laws and regulations.
With regards to accountability and transparency, he said everything was accounted for until the end of 2019, and all accounts and statistics were available for the HoR to inspect.
The CBL was then accused of not being proactive enough in coming up with solutions for problems such as the liquidity problem.
He was criticised for signing external agreements with foreign states – without the HoR’s knowledge and was asked again why he had shut down the clearing system with the east. He was also accused of conducting failed monetary policies and hiding behind political divisions.
El-Kaber denied all the accusations and criticisms made of it in the last Audit Bureau report, referred to by some HoR members in their criticisms of the CBL.
On banking services, queues at banks and the liquidity crisis, the CBL reported that there are now 1.3 million debit cards in circulation and that a turnover of 2.5 bn was conducted using e-payments. This they said pointed to progress in e-banking to ease the cash crisis.
On the agreement with Turkey, he claimed it was only an MoU on technical matters to establish a FINTECH sector in Libya.
El-Kaber denied the accusation that there is an inequality of the distribution of wealth between western and eastern Libya. He said this point was successfully marketed by the east to the international community. He said since 2013 the country has been suffering a deficit financed by reserves or the foreign currency sales surcharge, and so there has been no wealth to distribute.
On the Maetig-Hafter deal to resume oil production/exports, he said the CBL was not informed and had nothing to do with it. He also did not approve the suggestion that oil revenues be put in a new account outside the existing legal process.
On subsidies, he pointed out that subsidies do not benefit the general public but benefit only the smugglers.
He agreed the CBL and government needed to agree on reforms. On the supply to the foreign currency black-market, he said as long as there is demand, there will be supply. Some of the supply came from fuel smugglers and fake Letters of Credit imports. He said these were not CBL areas and it was for other executive authorities to inspect goods at ports etc. he said the CBL delt with documents it receives. He said Libya’s governments did not practice good governance since 2011 and lacked experience.
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