Libyans Ditch Dollars as Oil Recovery Offers Economic Relief

(Bloomberg) -- Libya’s powerful black market traders are encountering an unfamiliar sight: people showing up with bundles of dollars for sale.

Rising oil prices have relieved financial pressure on Libya, allowing authorities to channel more dollars to importers since the start of the year. Meanwhile, the central bank has eased restrictions on currency transfers that had made the black market the primary supplier of hard currency, fueling record inflation and impoverishing wage-earners already struggling since the 2011 NATO-backed rebellion.

The sudden hard currency influx strengthened the dinar by 50 percent on the black market last week. By Monday, the rate had stabilized around 6.25 per dollar after languishing between 9 and 10 for much of last year. The official rate is pegged at 1.34 per dollar.

The development could offer some respite to the fragile internationally-recognized government in Tripoli, which has faced public anger over the rapid deterioration in living standards and security.

“It’s all come together at the same time,” said Ziad Layas, a Tripoli-based textile importer. “This might be a pain for drivers and bill-payers worldwide but is a blessing for a country that relies on oil as its sole source of cash.”

Offloading Greenback

Since the war that ousted Muammar Qaddafi, Libya has been carved up among dozens of militias, with rival administrations in the east and in Tripoli. In 2014, infighting crippled shipments of crude oil, Libya’s main source of income, devastating the import-dependent economy. Oil exports resumed in September 2016 and output last year reached its highest level in four years, but a collapse in global prices delayed economic recovery.

As dollar-earnings dwindled, the central bank stopped granting letters of credit to most importers. That forced them into the black market, where a weakened dinar drove inflation to a record 31 percent in the second quarter of last year.

Central Bank Governor Sadiq Al-Kabir refused to devalue, even as other oil-exporters from Nigeria to Russia did. With crude prices recovering to three-year highs near $70 a barrel last week, Kabir’s stubbornness might yet pay off.

Oil revenue nearly tripled to $14 billion in 2017 from $4.8 billion in 2016, according to central bank data. Royal Dutch Shell Plc and BP Plc recently approved annual deals to buy Libyan crude for the first time in years.

“When oil prices fell worldwide combined with a decline in oil production domestically in 2015, the rates on the black market skyrocketed,” said Libyan analyst Said Ali ElSalh. “Now, we’ve started to see the opposite.”

Black market traders said Libyans began offloading their dollars savings after the central bank announced it would raise the annual amount of foreign currency available to individuals to $500 from $400, effective Jan. 15. It eased restrictions on foreign currency transfers and bank cards, too.

The Tripoli government also gave the central bank until the end of February to clear the backlog in letters of credit to importers approved by the Economy Ministry in 2017. A ministry table published Jan. 8 suggests 5,557 requests worth $4.1 billion were authorized between August and December.

Importers and economists estimated at least 2,000 letters of credit worth $1.5 billion had been processed so far. Talk that a letter of credit was opened for an underwear shipment buoyed the dinar this week, as the central bank had been prioritizing essentials like food and medicine. The central bank didn’t respond to requests for comment.

Importers Smarting

Though received as a harbinger of economic recovery, the rapid turnaround has hurt some importers, speculators and ordinary people.

Ali Jhawi, who bought dollars at 9 dinars some months ago to pay for his wife’s surgery in Tunisia, was back on Sunday to sell the leftover cash before the price falls further. “I know the price is low compared to a few days ago but there’s no money in the banks,” he said.

Some black market dealers are refusing to buy dollars until the price stabilizes.

“I’ll wait for a while to understand more about this collapse and who’s behind it,” said Tripoli-based Ali Mahmoud.

©2018 Bloomberg L.P.