The Central Bank crisis puts Libya at an impasse

As expected, there has not been any significant progress this week regarding negotiations to solve the Central Bank of Libya (CBL) leadership crisis. The House of Representatives (HoR) Speaker Agila Saleh rejects dialogue with the Presidential Council (PC) and solely pursues talks with Khaled al-Mishri, despite the contested leadership of the High Council of State (HCS). The former and current CBL leadership trade barbs and share contradicting statements regarding the financial health of the country and its links to the international financial system. This creates an impasse that is likely to be prolonged as no actor is willing to yield.

A closer look

For more than a month, Libya has been forced into an impasse following the PC’s decision to overhaul the CBL’s leadership, in violation of the 2015 Libyan Political Agreement (LPA) which stipulates that only the HoR and HCS are mandated to change sovereign positions. This crisis has escalated in an oil blockade that has halved Libya’s oil output, and created a ticking time-bomb for the country’s economy. The United Nations Support Mission in Libya (UNSMIL) has tasked itself with bringing the HoR, HCS, and PC together for talks to resolve the CBL crisis, but these negotiations have so far not led to any breakthrough.

The HoR Speaker has rejected dialogue with the PC, arguing that only his body and the HCS are mandated to discuss sovereign positions. The HCS, currently in its own leadership crisis between Khaled al-Mishri and Mohamed Takala, has been relatively passive and Saleh is seeking talks with al-Mishri to clarify the HCS’ stance on the CBL crisis – clearly stating that the HoR recognises al-Mishri as HCS head and not Takala. The HoR Speaker continues to raise the alarm regarding the economic and reputational risks related to the CBL crisis, warning that previous efforts to stabilise the exchange rate have now been undone by the PC’s decisions regarding the CBL leadership.

In particular, Saleh warns that the exchange rate will soon exceed 10 Libyan Dinars (LYD) to the U.S. Dollar (from its current level hovering around 8 LYD via bank checks). He added that the crisis will impact development projects and that it will take time for Libya to regain the trust of international financial institutions following the resolution of the crisis.

Former CBL Governor Sadiq al-Kabir has reflected Saleh’s alarming tone by warning that Libya could face such a dire economic condition that would force it into an oil-for-food barter deal as seen with Iraq in the 1990s. Al-Kabir expects a unilateral decision by the HoR-HCS to reinstate him or at least put his deputy Marai al-Barassi in place in the meantime – a decision which would have minimal impact on the CBL headquarters in Tripoli and further create confusion.

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