The Tripoli based Libyan Ministry of Economy and Trade has request that the Libyan Customs Authority start to implement its decree No. 42 of 2025 regarding the prohibition of imports and exports except through banking operations approved by the Central Bank of Libya (CBL). The decision applies to all Libyan ports of entry.
The decision was first announced in the first quarter of this year and was planned to be implemented on 1 April. However, it was suspended due to objections from smaller importers.
Analysis: Rationale and drawbacks
Today’s Ministry of Economy and Trade decision came on the recent prompting by the CBL. This comes as part of the CBL’s efforts to reduce demand on hard currency in the black market, retain the value of the Libyan dinar in the black market and fight inflation.
It will be recalled that the previous Tripoli based Libyan government under Faiez Sirraj had also unsuccessfully attempted to prohibit the import of goods without bank payment through decree 560 of 2020.
It is also unclear if the eastern Libyan government will implement this western Libyan government decree. If it is not implemented in the east, it may divert some imports to eastern ports to be transported by road to western Libya. This would defeat the object of this decree
CBL restricted list of importable goods through LCs
One of the problems with official LCs is that the CBL and Economy Ministry had taken it upon themselves in the past to draw up a list of what they sees as necessary goods and products for which LCs can be opened. The CBL sees this as part of its effort to preserve Libya’s diminishing hard currency reserves in view of the country’s economic crisis.
Libya’s budget has been operating on a deficit for years made up through CBL loans. The deficit has been caused by several factors over the years. These include over dependence on hydrocarbons, Libya’s politically motivated oil closures and the crash in international crude oil prices, the lack of diversification of the Libyan economy, the lack of local industry leading on a dependence on imports paid for by hard currency, a lack of control at ports and the failure to impose customs duties. Customs duties can direct imports, restrict demand and earn the state revenues.
An attempt to solve the cash crisis
The CBL also uses the implement of official LCs, by insisting a proportion of LCs is paid for in cash not by cheque or bank transfer, to force Libyan importers to get their cash hidden in their homes out into circulation. This they hope will help reduce the country’s cash crisis. As a result of the loss of confidence by the public in the Libyan authorities, Libyans have been hoarding their cash at home. This has left the banks dry.
Reduce the price of hard currency on the black-market
Nevertheless, the imposition of restrictions on what goods can be imported leaves a raft of goods that cannot be imported through LCs. This gap has been filled by the nimble private sector who buy hard currency on the black-market (or who have hard currency abroad) to meet demand for goods off the LC list.
Inflation, prices and cost of living
Hence allowing goods to be imported outside the LC system creates demand for hard currency on the black-market. This helps push up the price of hard currency which has a knock-on effect on inflation, prices, cost and standard of living.
Small business and grey economy
There are many small businesses operating in the grey economy who also prefer to import goods using cash. That way they avoid the taxman and the red tape and bureaucracy of opening LCs. There are also accusations of corruption by bank officials in facilitating the opening of LCs.
Taxing the grey economy
By restricting the payment of imports to official banking transactions, the authorities would also have a better chance to tax small businesses operating in the cash grey economy.
It is unclear if the Tripoli government will be able or willing to implement this new procedure to the letter. For example, Tunisian and Egyptian SME exporters and farmers engage in instant cross-border trade, especially for seasonal fruit and vegetables. These type of farmer exporters are used to the traditional cash-based transactions, reacting to the farming season and instant demand from Libya based on phone calls as prices in Libya become favourable.
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Tripoli Libyan government reverses decision on imports needing LCs
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