Can Libya’s Central Bank Survive as the Country Fractures?

Coverage of Libya tends to focus these days on airstrikes, gun battles, and warring militias — correctly enough, since these are also the things that tend to loom large in the lives of Libyans. Yet even amid the current chaos it’s important to remember that the country still has institutions, and that their continued existence is crucial to the survival of the most basic mechanisms of modern life. One prime example is the central bank.

Like comparable institutions around the world, the Central Bank of Libya (CBL) is supposed to provide conditions for the smooth functioning of the national economy. Yet Libya today, with its two rival parliaments and two rival governments, is deeply divided. Now the CBL, which has been operating with an unclear mandate since the 2011 uprising that overthrew the regime of Muammar al-Qaddafi, finds itself under corresponding stress. Will it fall a victim to the same conflict that is paralyzing the country’s political life?

On Sept. 13, the democratically elected and internationally recognized Libyan parliament, located in the eastern city of Tobruk, decided to sack CBL Governor Sadiq al-Kabir. The lawmakers appointed his deputy, Ali Hibri, as the new head of the bank. (Hibri is currently working mostly in the central bank branch in Benghazi, though he sometimes operates from the headquarters of the Libyan government in Al-Baida.)

The sacking of Kabir was the result of his failure to obey two parliamentary summons to the city of Tobruk to discuss the financial situation, in particular the governor’s decision to block most of the 2014 budget passed by the previous parliament (GNC). The current government urgently needs those funds. Despite speculation that he might choose to ignore the parliamentary decision on his firing and continue to operate from his office in Tripoli, Kabir has chosen instead to go the legal route. He has decided to challenge the decision in the courts in order to maintain the integrity of the CBL as an institution. Had he simply defied the parliamentary order, the country would have ended up with two central bank governors, meaning the disintegration of one of the most important institutions in post-Qaddafi Libya.

Recently I met with Abdul Salam Nasyia, the chairman of the Finance Committee of the House of Representatives (the parliament in Tobruk), and asked him about Kabir’s decision to block the 2014 budget. "The 2014 budget was approved by the previous parliament, and the estimates of the revenues in the budget were exaggerated, as were some expenses, too," Nasyia told me, saying that his committee is in the course of revising the budget to make it more realistic.

According to Nasyia, the central bank governor overstepped his authority by trying to interfere with financial policy instead of sticking to the CBL’s primary task of ensuring monetary stability. "Instead of referring the matter to the office of the public prosecutor and the Audit Bureau, Kabir chose to block the government’s finances altogether and failed to report to parliament on the issue despite our repeated calls," Nasiya told me. "So we had no choice but to replace him." This isn’t the first time that Kabir has been accused of overstepping his authority. In April, Libyan Prime Minister Abdullah al-Thinni accused the head of the bank of obstructing the government and exceeding his powers, causing considerable damage to one of the few state institutions that still enjoyed respect.

Before Kabir’s firing, the CBL issued a statement warning against involving it in the ongoing political and armed struggles in the country: "The Central Bank of Libya represents the last line of defense of Libyan institutions, and it is crucial that it remains intact for its pivotal role during these turbulent times." The central bank was under enormous pressure from the self-declared opposition government of Omar al-Hassi in Tripoli. Hassi’s government was formed by an alliance of Islamist and Misratan militias and supported by a small number of the members from the previous parliament, the General National Congress (GNC).

Despite the fact that Hassi’s government is not recognized internationally, the militias that helped form his government happen to control Libya’s capital city militarily. Due to this reality on the ground, the sacking of Kabir did not change much in terms of unblocking the budget and addressing the central bank’s concerns about exaggerated estimates of revenues and expenses. The new governor, Hibri, is supposed to take up his post this week. But confusion over the role of the Central Bank of Libya is unlikely to cease once he does.

On Oct. 8, a shipment of printed bank notes worth 1.2 billion Libyan dinars, just over $900 million, was delivered to the Central Bank’s headquarters in Tripoli. This served as a reminder that the banking system is still organized around the capital city, which poses big challenges to officials trying to manage it from the east. It also underlined the lack of clarity about who is really in charge. Who is carrying out the administrative work in Tripoli, and to whom are they loyal?

Due to the centralized nature of the Libyan state, the government authorities currently operating from cities in the east of the country are finding it difficult to exercise their authority in a meaningful way on the ground. "In order to be fully functional we require full access to the system and various individuals in Tripoli," said Nasyia. "We’ve been taking fast and effective steps to restore the functionality of this vital institution, and if the difficulties persist we’ll have to take further steps." There are fears that central bank officials in Tripoli might be under enormous pressure from the militias currently controlling the capital, which could force them into committing "financial crimes," according to Nasyia. "We don’t know if any financial crimes have been committed or not," he told me, "but we realize that the officials in Tripoli are under real threat from the militias in control there."

Libya is going through the most difficult circumstances imaginable. Amid myriad political problems and a ballooning budget deficit, the central bank is one of the very few state institutions that all Libyans believe in. It is imperative that the various factions in post-Qaddafi Libya respect the integrity of national institutions such as the Central Bank of Libya and the National Oil Corporation. Keeping these institutions alive will prove essential to restoring stability and maintaining national unity.

Mohamed Eljarh is the Libya blogger for Transitions and a nonresident fellow at the Atlantic Council’s Rafik Hariri Center. Read the rest of his blog posts here.