For Abdulqader, a twentysomething clothing store owner, getting to Turkey to get goods for his shop, has grown difficult and costly due to the volatility and surge in the rate of the US dollar in Libya, not to mention the difficulty in getting dollars in the first place.
Prices, says Abdulqader, have soared because merchants now get dollars from the black market at an exchange rate of almost two Libyan Dinars (LYD) per US dollar, as banks have stopped selling dollars. He attributes the high prices to the doubling of the costs of travel and freight.
For Abdulqader, a twentysomething clothing store owner, getting to Turkey to get goods for his shop, has grown difficult and costly due to the volatility and surge in the rate of the US dollar in Libya, not to mention the difficulty in getting dollars in the first place.
Prices, says Abdulqader, have soared because merchants now get dollars from the black market at an exchange rate of almost two Libyan Dinars (LYD) per US dollar, as banks have stopped selling dollars. He attributes the high prices to the doubling of the costs of travel and freight.
Volatility and deterioration
A major impact of the ongoing war in Libya is the currency devaluation given the economic conditions resulting from instability. Apart from the huge losses incurred by buildings and companies and the cessation of trade in a number of outlets, oil production has significantly dropped and has not risen to its usual rate of 1.6 million barrel a day before the February 2011 revolution.
All these factors have largely affected the economy, especially the exchange rate. At the beginning of the revolution, the black market exchange rate weakened to nearly 1.6 LYD per dollar, down from1.32 LYD per dollar, but it soon started to rise to its normal rate with a 2 percent difference from the official rate which remained at 1.36 LYD per dollar.
This stability however did not last long. The dinar has experienced several ups and downs since 2011, most notable was the last drop, which started six months ago concurrently with the military unrests, particularly in the Oil Crescent region, when the black market exchange rate dropped close to record lows.
Undersupply
Economist Khalid Mukhtar argues that the Libyan currency is directly affected by the hard currency supply the state puts on the market. The real rate, says Mukhtar, is the one offered in the black market, while the official rate — which is now 1.36 LYD per dollar — was set by the state in 2002 after the real price had been agreed upon. Since then, the state, represented by the Central Bank of Libya – CBL – has maintained this policy.
Mukhtar adds that the rise in the rates of the dollar and euro, which took place in the past months, was primarily due to undersupply of foreign currencies because the CBL stopped providing them and stopped effecting payments for merchants through documentary credits.
This has affected Ahmad, a 32-year-old journalist who works for a foreign institution, since he could no longer receive his wage because the CBL has stopped receiving foreign remittances.
“Prices are on the rise. I work with no pay and have no other source of income,” says Ahmad, who lives in the city of Zawiya, which has been witnessing almost continuous clashes for months and has significantly contributed to the high prices.
Although the foreign currency exchange rate is rising, Ahmad says his financial situation in the past was better because the difference in the rate does not cover the large increase in goods rates. “I am losing in both cases,” he says.
Bonuses and compensations
Mukhtar however believes there is another factor that has contributed to this decline; namely, the huge bonuses granted to members of armed militias and the compensation given to the prisoners under Gaddafi (i.e. oversupply of dinar in the market compared to hard currency), in addition to the rampant corruption in state institutions.
“When President of the Constituent Assembly Ali Tarhouni says for example that total government spending since the revolution has amounted to LYD 143 billion in a five- or six-million-populated state, on issues other than construction or investment and in a short time of no more than two or three years, the primitive Libyan market could not absorb this amount which has weakened the currency and led to the current inflation,” argues Mukhtar.
The war hinders us
CBL spokesperson Essam Oul primarily attributes the volatile exchange rates of dinar to the security conditions in the country. Black market speculators, says Oul, are taking advantage of this to achieve personal gains, let alone that the dollar exchange rate has risen in international markets, which has helped raise local prices.
Oul claims that the fall in oil exports and prices in international markets have added a burden on the Libyan economy. The CBL, says Oul, is concerned about the continued public spending at rates incommensurate with the revenues. The CBL has proposed some measures to reduce spending, but the implementation of some measures has been slow, while other measures have been rejected.
The CBL, according to Oul, cannot cover the local demand on hard currency under the current circumstances and its governor has formed an advisory committee to develop a number of solutions to the economic crisis, including strengthening the dinar.
