Exchange rate and its challenges
Mohsen Dreija, a professor of economics, indicated in an interview on “Al-Bilad” program on 218News, that the results of the exchange rate adjustment began to take effect, especially since the exchange rate reached 6.30 three weeks ago, and now it has decreased to 5.10 dinars per one US dollar.
He considered that this is an improvement, saying that during the next week; “we will see the real impact of the new exchange rate.”
Dreija said many Libyans believe that this improvement in the dollar exchange rate is not appropriate for the expenses of daily life due to the increase in the prices of some basic commodities that were supplied with the rate of 3.90 dinars to the dollar.
“But we do not forget that many basic things were not included in the funds during 2020, including clothing, spare parts, electrical and household items, and cars. We will see a decrease of 25% to 30%.” He added.
Mechanism for applying the new exchange rate
Dreija said the state economy depends on two things, namely: the monetary policy of the Central Bank, and the financial policy of the Ministry of Finance and Government.
He agreed with what the majority of Libyans say, that this price is considered high, adding: “Unfortunately, during the past years, the amount of Libyan money in existence reached 55 billion dinars of liquid cash circulating in the markets and accounts owned by individuals and public authorities, whose value reached 75 billion dinars, and if we went back in time 15 years, we would notice that the total amount of money in Libya was eight billions, and this amount is available for currency demand, while the exchange rate of 1.40 was very acceptable.
Importance of government budget
The economics professor said if the government sees that the new exchange rate now will provide it with 80 billion dinars to enable it to carry out the required spending, then this amount will not be possible with it to reduce the exchange rate.
Libyan dinar trades against the dollar and foreign currencies on the black market
He added: “I will mention what happened in Sirte in 2013, which is the theft of 53 euros and a few million dollars, and these sums were destined for the banks to be sold, and the fear is that these funds were used to finance terrorist operations.
“The state is unable to secure banks in all of Libya, and is unable to secure the transfer of currency, especially as we know that the euro and the dollar are easy currencies to transfer, but with all this, I believe that the use of the “Western Union” system and electronic cards must be accompanied by the money transfer system inside Libya.” He said.
Dreija said it is permitted by Libyan law, “that the citizen has the right to open an account in foreign currency and to deposit any money obtained from outside Libya or from within it and to transfer it as he wishes to any place inside or outside the country, adding that the state must activate this aspect of the law and work with it.
Dreija emphasized that the Libyan economy is currently in a state of uncertainty, and any plans to improve it require continuing oil production and a rational government that spends the funds available to it in an appropriate manner, and all parties are committed to implementing these economic reform policies.
He believed that in stable economic conditions, it is possible to benefit from salary adjustment when you have 15% of the workforce working in the government and the rest in the private sector.
“The problem in Libya is that there is 85% of the workforce working in the state, and this is the largest percentage in the world, as well as it is a big problem, as the state in this case cannot raise salaries, or adjust salaries when there is a private sector that produces. Unfortunately, salaries are now treated like a social grant.
Dreija said the idea is that the exchange rate of 4.30 could be after three months 4.20, and after six months it is assumed that it will be four dinars, and so on until we reach two dinars, for example, and then the exchange rate stabilizes.
“During this stage, it is necessary to commit to maintaining spending levels and not expanding, and the problem is that governments have constant pressures such as salaries or projects that are required to be completed, and they see that there is an opportunity, and the government’s life is short, thus it spends to absorb the pressures it faces, but this is a big mistake.” He indicated.
Dreija hoped that there would be a commitment on the part of the fiscal policy, so that the exchange rate could be lowered, and this is the goal that would improve individuals ’income and thus improve the standard of living.
Survival of the black market
Dreija clarified that there is a real problem in an important point, which is that the citizen will take US dollars in the form of transfers.
He said if “we received a currency, this currency would come to an airport in Libya and be transferred to the Central Bank of Libya, which in turn sells it to banks, and herein lie the risks.”