Yesterday’s publication by the House of Representatives of a law authorizing the settlement of Libya’s public debt up to 2025 —estimated at 303.4 billion Libyan dinars—has sparked political and public debate. The debt is to be repaid by the Central Bank of Libya deducting 3 percent from state revenues. Several political commentators and analysts have opposed the move anticipating that its repayment will economically affect Libyans negatively.
Leading Libyan businessman and regular economic analyst and HoR, government and Central Bank of Libya critic, Husni Bey, says opposition to this debt cancellation has no economic foundation. He says not settling the public debt would only postpone the necessary financial normalization, while increasing the likelihood of further deterioration of the Libyan dinar in the future.
His analysis presents an economic opinion based on monetary data, fiscal flows, and reserve movements, to show that the feared or imagined negative effect of debt cancellation on the Libyan economy has already occurred. Here is his analysis:
- 1-The Real Cost of Public Debt Has Already Been Paid
From an economic perspective, the Libyan citizen has already borne the full cost of this debt, through:
- Inflation caused by excess liquidity
- Loss of purchasing power due to the depreciation of the Libyan dinar
- Depletion of foreign exchange reserves, which declined from approximately $120 billion in 2011 to around $85 billion today.
This erosion of reserves alone represents a loss of roughly $35 billion, which—when converted at an average exchange rate of 6.25 LYD/USD—equals more than 188 billion dinars. This amount accounts for a substantial portion of the accumulated public debt.
- 2-Expansion of Money Supply Confirms Debt Monetization
Monetary data clearly shows that public debt was financed primarily through monetary expansion, not productive growth:
- Money supply in 2011: 79 billion LYD
- Money supply today: 190 billion LYD
- Increase: 111 billion LYD, held in accounts of Libyan citizens
This confirms that deficit financing occurred through money creation, which inevitably resulted in inflation. Denying the relationship between money creation, deficit financing, and inflation contradicts basic economic principles.
- 3-2025 official and un-official budget financing did not rely on new money creation except 2 billion LDs but it was covered by selling 28 billion USD.
Contrary to some claims, in 2025, only about 2 billion dinars of new money were added to the money supply. Government spending—particularly in eastern Libya, which approached 60 billion dinars—was financed through existing resources:
- 21 billion dinars from the 15% foreign exchange fee
- Approximately 39 billion dinars from selling $28 billion in foreign currency at an exchange rate of 5.4 LYD/USD, generating 151.2 billion dinars from this amount:
- 107.5 billion dinars financed public expenditure (as per official reports) 43.7 billion dinars remained. When combined with 21.4 billion dinars from FX fees, a total of 66.1 billion dinars was available to finance eastern expenditures
This confirms that spending was largely financed through asset revaluation and FX sales, not unchecked money printing.
- 4-Opposition Is Political, Not Economic
The argument against cancelling or settling the public debt lacks real economic substance. The damage has already occurred: The “blow has been struck” The “blood has been shed and dried” The economic loss is irreversible under current conditions.
Maintaining the debt on paper does not reverse inflation, restore reserves, or strengthen the dinar. On the contrary, prolonging uncertainty only increases the risk of further currency depreciation.
- 5-Debt Cancellation Has No Additional Inflationary Impact
Settling or cancelling the public debt:
- Does not create new money
- Does not increase inflation
- Does not weaken the currency further
Instead, it:
- Cleans up public balance sheets
- Restores institutional clarity
- Reduces systemic risk in the financial system
Conclusion
The opposition to the public debt settlement law is political rhetoric rather than economic reasoning. The Libyan people have already paid the price through inflation, reserve depletion, and declining living standards.
Cancelling the debt merely acknowledges an existing reality—it does not create a new one. Failing to proceed with settlement offers no economic benefit and only postpones necessary financial normalization, while increasing the likelihood of further deterioration of the Libyan dinar.
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