The Libyan central bank’s decision to sharply devalue the Libyan dinar has been hailed as an important step to improve the country’s deteriorating economy.
The exchange rate of Libyan dinar against the U.S. dollar will be lowered from 1.4 dinars for one dollar to 4.48 dinars, the bank said on Wednesday.
“This rate will enter into force on Jan. 3, 2021 and will be available for all government, commercial and personal uses,” the bank said in a statement.
The bank also said that more decisions will be made in extensive meetings over the coming weeks to solve local banks’ problems.
Kamal al-Mansouri, a Libyan economic researcher, believes the bank’s decision is a “necessary evil” to face the current economic crisis in the country.
“The bitter truth that we face is that the value of the public debt has reached 150 billion dinars, which is huge as a result of an unbalanced fiscal and monetary policy over the past few years. Therefore, it was necessary to intervene and unify the exchange rate of the dinar against the U.S. dollar,” al-Mansouri told Xinhua.
For years, some companies and individuals had access to U.S. dollars at the official rate of 1.4 dinars, while the rate in the black market was more than six dinars per U.S. dollar, which is an unnatural gap that has to be addressed, he said.
“Everyone will have access to U.S. dollars at the same rate. Therefore, the gab in the black market will shrink and will not exceed 1.5 dinars with the new official rate. The devastating economic effects will decrease due to the black market’s control of the supply and demand,” al-Mansouri added.
Ali al-Isawi, former minister of economy, considered the bank’s decision an “important step with significant results”.
The United Nations Support Mission in Libya (UNSMIL) on Wednesday praised the decision, calling it “an important and much needed step towards alleviating the suffering of the Libyan people and a good sign that this vital sovereign institution is moving towards unification.”
“Now is the moment for all Libyans – particularly the country’s political actors – to demonstrate similar courage, determination and leadership to put aside their personal interests and overcome their differences for the sake of the Libyan people in order to restore the country’s sovereignty and the democratic legitimacy of its institutions,” said the Acting Special Representative of UN Secretary-General Stephanie Williams.
Williams, together with the co-chairs of the Economic Working Group, the U.S., EU and Egypt, convened a meeting of representatives of Libyan economic institutions in Geneva to develop critical economic reforms and restore public confidence in the management of Libya’s economy, the UNSMIL said in a statement.
“Participants agreed that the current economic situation is unsustainable and that Libyan institutions must take steps towards functional unification, operate transparently and prove that they can effectively respond to the needs of the people,” the statement said.
The participants agreed to meet again in January to review progress on these issues and consider further technical steps needed to stabilize the Libyan economy and respond to the needs of all Libyans, the statement added.
Due to years of armed conflict and political instability, the Libyan economy has been suffering and local banks severely lack liquidity.
Libya is politically divided between the eastern and western governments, including two divided central banks.