During the session on the Central Bank of Libya’s (CBL) independence at the Banking Sector Development Forum that opened in Tunis today (7 to 8 December), CBL Board Member, Reda Gergab said “The Central Bank enjoys a significant degree of independence, but the environment continues to exert pressure on the Board.”
Lack of control over public spending
“The Central Bank issues new decisions daily to implement reforms, and monetary policy is unstable due to the lack of control over public spending. There are budgets that are inconsistent with the state’s structure, and the existence of two governments is a reality. All of these factors impact the Central Bank.”
Absence of a fair spending law fuels spending appetite of both governments
“There is no doubt that the Central Bank manages an entity that is both influenced by and influences its surrounding environment. What has fuelled the appetite for spending by both governments is the absence of a fair spending law. The law exists and is renewed annually, but unilaterally, without considering the economic situation or the state’s structure.”
CBL is forced to deal with the reality
“There are entities mentioned in the law that do not exist in reality, while conversely, there are entities in reality that are not included in the law. The Central Bank has placed itself in a difficult position, as the law was designed for one government, while the reality indicates the existence of two. The Central Bank is dealing with this situation.”
The law does not take into consideration the existence of two governments
‘‘The law exists and is implemented annually, but unilaterally. It fails to consider the existing division in Libya, the overall size of the economy, and the differing structures of the state, both in form and substance, between the two governments. Consequently, the Central Bank finds itself in a difficult position in implementing this law, especially since it is designed for a single government.’’
The status of the deficit
‘‘The reality is that there are two governments, and therefore the Central Bank deals with this situation. Regarding the deficit, it considers whether the deficits in previous budgets are a result of actual existing needs or of approved, ill-considered spending’’.
CBL must constantly realign its policies with changing reality
‘‘This spending is based on decisions from the legislative authority or other exceptional laws, and all of this impacts the economy. The Central Bank finds itself revising its policies and reprogramming them to align with this reality.’’
CBL not consulted on budget, forced to mitigate excessive spending by both governments
‘‘The normal procedure in this case is for the government to prepare the budget and submit it to the House of Representatives, which in turn submits it to the Central Bank for its opinion, given its role as an advisory body to the government.
However, in reality, this law is issued without considering any of these procedures. Consequently, the bank finds itself facing a role that requires it to mitigate the excessive spending of both governments, spending that is continuous and does not stop with or without legislation.’’
HoR and government must produce unified budget
‘‘The Central Bank finances its budget through treasury bills issued against treasury bonds, as stipulated by law in cases of deficit. Managing public spending is a shared responsibility between the House of Representatives and the government. They must meet together to produce a unified document, in the form of a law or other instrument, that is prepared in accordance with the economy’s absorptive capacity’’.
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