An overview of the Central Bank of Libya crisis

On August 18th, the Presidential Council (PC) issued two momentous decisions reshuffling the Central Bank of Libya’s (CBL) board of governors and leadership, thus sacking the Governor Sadiq al-Kabir after 13 years in office during which he had amassed tremendous influence over Libyan politics and finances.

Behind the PC’s decisions hid Government of National Unity (GNU) Prime Minister Abdhulhamid Dabaiba, who fell out with his former ally al-Kabir in 2023 and opposed the latter’s overtures to his rivals, including via the disbursement of CBL funds to the eastern-based Government of National Stability (GNS) and Libyan National Army (LNA).

However, the PC decisions violated the UN-backed Libyan Political Agreement (LPA), which stipulates that only legislative bodies like the House of Representatives (HoR) and High Council of State (HCS) can change heads of sovereign institutions. As a result, the sacking of al-Kabir led to renewed tensions with the shutdown of key oil fields like el-Feel by the LNA — in addition to al-Sharara over which force majeure was announced prior to the CBL crisis — and created a prelude to an economic crisis with Libya being disconnected from the international financial system.

The looming economic crisis was eventually a key factor in motivating negotiating parties, i.e. representatives of the HoR, HCS, and PC to reach an understanding. A preliminary agreement was reached on September 26th to once more change the CBL’s leadership, this time with consensual personalities: Naji Mohamed Issa Belgacem as Governor and Marai al-Barassi regaining his position of deputy which he held since 2023. The preliminary agreement was this week approved by both the HoR and the HCS, and is generally backed by both the GNU and LNA, thus leading the way for a potential lifting of oil shutdowns and force majeure in Libya.

Background and context

The summer 2022 covert deal between the GNU and LNA over the National Oil Corporation (NOC) taught al-Kabir that long standing figures like NOC Chairman Mustafa Sanalla could in fact be deposed following east-west negotiations. This motivated him to create his own line of communication and open the financial gates to eastern Libya. This led to a new political reality throughout 2023 and 2024, financially weakening the GNU and empowering eastern actors in their drive toward autonomy and economic development.

The HoR Speaker, Agila Saleh, who had been historically opposed to al-Kabir, welcomed such developments and had a unified budget worth 179 billion Libyan Dinars (LYD) approved in July, thus formalising the distribution of financial resources between the GNU and GNS. By drawing closer to the east and anti-Dabaiba factions in western Libya, al-Kabir thought he created an insurance policy for himself but the PC’s decisions were immediately enforced by armed groups loyal to Dabaiba who broke out into the CBL’s Tripoli headquarters and forced al-Kabir out of the capital, virtually bereft of any support from his allies as the latter did not feel comfortable starting a conflict for the sake of his position. Overall, east-west diplomatic channels removed a “political dinosaur” with low popularity by striking a mutually-beneficial deal.

Who benefitted