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Another Oil Producer Under Pressure to Devalue Its Currency

Another Oil Producer Under Pressure to Devalue Its Currency thumbnail

Libya’s UN-backed government is under mounting pressure to devalue its currency, joining other energy producers from Nigeria to Kazakhstan that have buckled in the face of tumbling revenue and domestic turmoil.

The dinar has been steadily weakening on the black market over the past year as the nation’s political rifts thwarted a recovery in oil output. It hit a record low of 7 to the dollar this week, according to currency dealers in Tripoli. The official rate is 1.4.

The currency crisis is undermining Prime Minister Fayez al-Serraj’s efforts to unite a country fractured by five years of conflict following the 2011 ouster of Muammar al-Qaddafi, leading instead to public discontent as prices surge. Libya is split between two rival administrations and militias vying for power in the holder of Africa’s largest oil reserves.

Officials from the Tripoli-based central bank attended meetings along with other government members earlier this month in Rome. There they discussed a possible devaluation of the dinar and a removal or reduction of fuel subsidies, deputy minister of finance Abu Bakr al-Jafal said in an interview. Representatives of the central bank in eastern Libya also see a need for a devaluation to crush the black market, but say they must be involved in the decision.

“Devaluation is a must,” said Ali Jihani, an official at the eastern regulator, based in al-Bayda. “We might suggest making two exchange rates — one for national imports, and another higher one for business importers and personal transfers.” But if officials in Tripoli attempt to impose a solution on the east, there “will be consequences,” Jihani said by phone without elaborating.

‘Fragile Five’

While the oil-price slump has battered all energy producers, OPEC’s most vulnerable nations were dealt a double blow of sharply lower revenues and the increased risk of political turmoil. This includes Algeria, Iraq, Libya, Nigeria and Venezuela, a group dubbed the “Fragile Five” by RBC Capital Markets Ltd.

In Nigeria, a black market for foreign currency has boomed since the crash in oil prices strangled the inflow of dollars. The central bank has made several attempts to defend the naira after it plunged to a record in 2014, including a tightening of capital controls and restricting banks’ ability to trade foreign-exchange, as well a currency peg that deterred foreign investment and worsened the shortage of dollars companies need to pay for imports.

With the World Bank estimating inflation will average about 20 percent this year in Libya, the Presidential Council on Monday allocated 300 million dinars to import food and distribute it at fairer prices.

Rate Climbed

Libyan officials have been forced to tap foreign reserves to keep the country running, and as revenues declined they also limited access to hard currency. That made both ordinary citizens and importers reliant on the black market, and as demand for dollars outstripped supply, the informal exchange rate climbed.

Ultimately, Libya needs to ramp up oil production to boost revenue and stabilize the currency. Output doubled to about 600,000 barrels per day since September when Khalifa Haftar, the general who holds sway over the nation’s east, seized key ports and ended a blockade. the National Oil Corp. says it could rise to 900,000 barrels even without major investments to fix oil infrastructure. But that wouldn’t generate the revenue needed to meet current spending and the production gains are fragile in the absence of a lasting political solution.

Authorities have discussed devaluation before. “I’m surprised how the state is still reluctant to take these measures,” said Ahmed Sanussi, a commentator on Libyan issues based in Amman. “The delay means the continuation of the crises and the nonstop increase of black market prices,” he said. Waiting means “a bigger devaluation would be required in the future.”

Pushing through a credible economic program that curbs the dinar’s collapse could lead to a surge in support for Serraj and his beleaguered government. If it tries and fails, Haftar could be the one who benefits.

In Tripoli, university employee Moftah Faraj said the country should be able to solve its economic crisis but the existence of rival governments, financial institutions and militia pose big hurdles. He said he worries about the consequences of devaluation.

“We have problems with liquidity, high living costs, a lack of medicine and health care,” he said. Weakening the dinar “will only create more problems for Libyan citizens as prices will rise.”

For a devaluation to work, officials will need to improve access to credit and hard currency, said Amr Farkash, a Libyan economic analyst. “If there are no support measures, the devaluation will amount to a declaration by the central bank that it is struggling and might have to do it again.”


4 Comments on "Another Oil Producer Under Pressure to Devalue Its Currency"

  1. Anonymous on Sun, 27th Nov 2016 3:58 pm 

    Libya has a government?

  2. peakyeast on Sun, 27th Nov 2016 5:57 pm 


    “In 1967 Colonel Gaddafi inherited one of the poorest nations in Africa; however, by the time he was assassinated, Gaddafi had turned Libya into Africa’s wealthiest nation. Libya had the highest GDP per capita and life expectancy on the continent. Less people lived below the poverty line than in the Netherlands.

    After NATO’s intervention in 2011, Libya is now a failed state and its economy is in shambles. As the government’s control slips through their fingers and into to the militia fighters’ hands, oil production has all but stopped.

    The militias variously local, tribal, regional, Islamist or criminal, that have plagued Libya since NATO’s intervention, have recently lined up into two warring factions. Libya now has two governments, both with their own Prime Minister, parliament and army.

    On one side, in the West of the country, Islamist-allied militias took over control of the capital Tripoli and other cities and set up their own government, chasing away a parliament that was elected over the summer.

    On the other side, in the East of the Country, the “legitimate” government dominated by anti-Islamist politicians, exiled 1,200 kilometers away in Tobruk, no longer governs anything.”

  3. peakyeast on Sun, 27th Nov 2016 5:59 pm 

    “America is clearly fed up with the two inept governments in Libya and is now backing a third force: long-time CIA asset, General Khalifa Hifter, who aims to set himself up as Libya’s new dictator. Hifter, who broke with Gaddafi in the 1980s and lived for years in Langley, Virginia, close to the CIA’s headquarters, where he was trained by the CIA, has taken part in numerous American regime change efforts, including the aborted attempt to overthrow Gaddafi in 1996.”

    So.. about 3 governments – thanks to NATO.

  4. Anonymous on Sun, 27th Nov 2016 7:17 pm 

    Wonder what ever became of the Libya’s 150 tons of gold, its state-owned bank, its man-made river, and its social programs? University, medical and so on. The so-called ‘free press’ here doesn’t ever talk the aftermath of the blatant amerikan aggression against the people of Libya. Mind you, it never talks about uS aggression against the peoples of the world, period.

    Jewberg of course, mentions a number of ‘countries’ current economic woes. What it wont explore, is how NONE of the problems listed above were issues prior to the uS invasion.

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