Getting Past Libya’s Central Bank Standoff
International Crisis Group, 01 October 2024
The long-running feud between Libya’s competing authorities over the Central Bank has flared up again, threatening an economic crisis that could lead to unrest. The parties should press ahead with UN-backed mediation to achieve a resolution.
What’s new? In August, a dangerous dispute erupted between Libya’s rival authorities – the internationally recognised government in Tripoli and the parliament based in the east – over control of the Central Bank, after the former unilaterally appointed a new governor. It is part of a feud that has divided the country since 2014.
Why does it matter? The standoff could paralyse the economy and prompt armed groups to mobilise. It has already stopped imports and led most foreign financial institutions to suspend dealings with the Central Bank. The cost of being disconnected from the world financial system would be enormous for Libyan authorities and citizens alike.
What should be done? To prevent economic collapse, the Tripoli-based government and the parliament should follow through with a preliminary agreement sponsored by the UN to end the dispute. The UN should also integrate economic negotiations into its efforts to resolve the country’s overall crisis.
I. Overview
A standoff over control of Libya’s Central Bank threatens the relative calm prevailing in the divided country over the past two years. In August, the rival east- and west-based authorities stepped up their fight for the Bank, the sole legal repository of tens of billions of dollars in oil revenue. The dispute has already precipitated a partial shutdown of oil production and prompted most foreign financial institutions that normally do business with the Central Bank and Libyan commercial banks to suspend all transactions with them.
Denied access to a large portion of its oil revenues and cash reserves held abroad that are essential for covering state expenditures and importing goods, Libya could plummet into economic collapse, resulting in severe food shortages and possibly popular protest and an outbreak of militia violence. To avert those risks, the two sides should press ahead with UN-backed mediation to end the confrontation and revive multi-track negotiations aimed at reunifying the country and its governing institutions.
The feud over the Central Bank is a by-product of broader competition between authorities based in western and eastern Libya. The former include the internationally recognised government of Prime Minister Abdelhamid Dabaiba and its associated Presidential Council in Tripoli, supported by a military coalition made up of various armed groups; the second comprise the parliament based in the east of the country, which does not recognise the Dabaiba-led government, and an administration headed by Osama Hamad, backed by the Libyan National Army under Field Marshal Khalifa Haftar.
These rival authorities have been around in various incarnations since 2014, three years after the fall of Muammar Qadhafi’s regime; the Central Bank has been the focus of repeated disputes throughout this time, with the two sides vying for supremacy over it.
The stakes are high. Unlike in most countries, where a central bank’s role is to carry out monetary policy, Libya’s Central Bank also serves as the government’s fiscal implementing partner: it holds the government’s bank accounts and disburses operating funds to state entities and salaries to public-sector employees. Although oil money remains under Tripoli’s official authority, ad hoc arrangements over the past two years have allowed the eastern authorities as well to tap into the state funds that the Central Bank holds. These are sizeable.
Libya has Africa’s largest crude oil reserves, and its hydrocarbon revenues of some $20-25 billion a year account for almost the entirety of government income. It also has some $80 billion in reserves deposited in accounts held by the Central Bank at foreign financial institutions. Oil export revenues are Libya’s main source of foreign currency, used to pay for the imported goods on which its people depend heavily in the absence of significant domestic industrial or agricultural production.
The battle over the Central Bank broke out against the backdrop of deadlocked UN-sponsored negotiations between the parliament based in the east and another Tripoli-based assembly, called the High State Council, which is itself divided between supporters of the Dabaiba government and those calling for the prime minister to be replaced. Despite the lack of progress on political reunification, in 2022 the two leading figures in the respective camps – Haftar in the east and Dabaiba in Tripoli – hashed out an informal revenue-sharing arrangement that had been working for two years. Few expected the dispute that flared up in August.
The latest disagreement concerns the question of who is, or should be, the bank’s governor. The east-based authorities support Siddiq Elkebir, who has held the post since Qadhafi fell, but in August the Presidential Council in Tripoli unilaterally appointed a new board and replaced Elkebir with an interim governor, Abdel Fattah Ghaffar. The Council justified the move as a step toward better governance and financial transparency. A more plausible explanation is that the Tripoli government wanted access to more funds to shore up its political and economic standing, which has been eroding to its rivals’ benefit.
So far, the two sides have steered clear of violence, but the east-based authorities have retaliated for Elkebir’s sacking by shutting off about half of the hydrocarbon production in areas under their control. Unnerved by the discord, which pits two people who each claim to be the legitimate Central Bank governor against each other, most foreign financial institutions have suspended transactions with the Bank. According to foreign and Libyan officials, the freeze extends to its offshore arm, the Libyan Foreign Bank and subsidiaries, through which oil sales revenues pass before being deposited in accounts belonging to the Central Bank, though some of the Europe-based subsidiaries have reportedly continued processing transactions.
For now, foreign governments say they will not impose more drastic measures, such as freezing Libyan assets abroad, but a prolonged disconnection of Libyan banks from the global financial system could upend Libya’s oil-dependent economy. With limited access to its foreign reserves, the Bank could have trouble paying government expenses, many of which require hard currency, or handling payment requests for imports. If the suspension lasts, it could cause severe food shortages, dramatic rises in prices for basic goods and a rapid deterioration in living conditions. These, in turn, could snowball into social unrest or even prompt the rival camps’ militias to mobilise.
To mitigate these risks, the two sides should resolve the dispute over the Central Bank’s head by appointing a new leadership with the consent of all parties. UN-backed talks led on 26 September to the signing of a preliminary deal between emissaries of the House of Representatives in Benghazi and the High State Council in Tripoli that would see Naji Issa, a veteran Central Bank manager, appointed as the new governor. The deal is a good first step, but much could still go wrong. The House must ratify the agreement, the Presidential Council must revoke its choice of interim governor in August and a board of directors must be appointed.
Most importantly, powers over the Central Bank must be handed over to the new management without disputes flaring up. These steps need to be taken before foreign financial institutions that have halted transactions with their Libyan counterparts can be persuaded to resume business. The UN should also give ailing political negotiations a stronger economic dimension, which would help revive them, putting Libya on a path toward a reunified and more stable governing framework.
II. The Struggle for Control of the Central Bank
Disputes over control of the Central Bank have been a recurring feature of the Libyan crisis since the country’s governing institutions split in two in 2014. After balloting in June of that year, Siddiq Elkebir, with the backing of the Tripoli-based authorities, refused to fund the newly elected House of Representatives, the legislature that from its inauguration has been based in eastern Libya.
He also cut off financing to the House’s two main allies, the then-nascent Libyan National Army led by Haftar and a new east-based administration. He did, however, keep releasing funds to pay the salaries of public-sector employees based in the east who had been on the state payroll from before the 2014 crisis (paradoxical as it may sound, these employees included military officers aligned with Haftar).1
In the years that followed, the House of Representatives tried and failed to sack Elkebir at least twice. In 2014, it ordered Elkebir’s deputy, Ali Hibri, to take over, working from the Central Bank’s Benghazi branch.2 But Hibri did not receive international recognition and did not have access to the foreign accounts holding Libyan oil revenues.
He nonetheless managed to pay the salaries of employees working for the rival east-based authority who were hired after 2014 and new recruits who had joined the Libyan National Army, as well as their respective operating expenses, through parallel funding schemes, such as purchasing treasury bills from the eastern administration and then crediting its deposit account. But Elkebir remained in charge overall, since he controlled the accounts containing the proceeds of oil sales as well as the codes needed to carry out the Bank’s transactions worldwide.3 He also retained full international support.
The House of Representatives tried to depose Elkebir a second time in 2017, unilaterally appointing Mohammed Shukri as governor, but the latter declined the role, citing the lack of consensus behind his selection. Shukri knew that his appointment ran afoul of existing political accords. The UN-backed Libyan Political Agreement, which the UN Security Council endorsed in December 2015 after a year of negotiations and which remains the country’s governing document to this day, established that appointments of the Central Bank governor and directors of five other sovereign state institutions require consensus between the House in the east and the High State Council in Tripoli.4
The High State Council rejected the House’s appointment of Shukri because its members at the time still supported Elkebir, as did armed groups in the capital. Later in 2017, the two legislatures took tentative steps to replace Elkebir, whose five-year term had expired and who had proven divisive, but their representatives could not agree on who his successor should be.
Between 2018 and 2020, Libya’s political crisis descended into intermittent fighting, amounting to civil war. The Libyan National Army, backed by the United Arab Emirates and Egypt, on one side, and the Tripoli-backed armed groups with Turkish support on the other clashed in the eastern cities of Benghazi and Derna, as well as in the south and over oil fields in the Gulf of Sirte.
In 2019, the war reached Tripoli, with Haftar’s forces, now also assisted by Russian mercenaries, laying siege to the capital for over a year. This westward drive was partly an attempt by the eastern authorities to gain direct control of the Central Bank and access to its accounts, including its foreign currency reserves.5 When the offensive faltered in 2020, the Libyan National Army returned to its base in the east.
Throughout this period, Elkebir remained at the helm of the Central Bank by default. The Tripoli headquarters operated without a functioning board of directors, because most members sided with the east-based government. The governor, flanked by trusted managers, thus became the sole person responsible for Libya’s monetary policies. The east-based authorities regularly vilified him, portraying him as a pawn of their enemy the Muslim Brotherhood. They accused him of mishandling public funds and thus contributing to an economic crisis. They also said he was running the bank illegally without a board of directors.6
Even though Libya continued to sell billions of dollars’ worth of oil, ordinary people increasingly had to cope with shortages of cash and fuel, power cuts and breakdowns in other public services. These problems have only become worse today. Libyans have also had to bear delays in the disbursement of public-sector salaries and rely on the black market for foreign money transfers, because personal bank accounts have been disconnected from the international banking system.7
Those in power on both sides of the divide have blamed Elkebir for the hardships, as have many ordinary Libyans. Elkebir and his associates argue that, to the contrary, under his leadership the Central Bank has been “the last pillar standing to hold the country together, solely responsible for keeping its economy going”.8
In March 2021, UN-backed talks ended hostilities and briefly unified the country under an interim government led by Prime Minister Dabaiba and a three-man Presidential Council headed by Mohamed Mnefi, which the House of Representatives endorsed.9 This arrangement lasted barely a year, falling apart when the House appointed its own executive, led first by Fathi Bashagha and then by Osama Hamad, while Dabaiba and the High State Council held on to power in Tripoli.10
After 2022, however, relations between Elkebir and the east-based authorities unexpectedly improved. Exactly why remains unclear. Libyan bankers and foreign diplomats suggest that the thaw had to do with the Central Bank allegedly agreeing to underwrite (or turning a blind eye to) some of the east-based authorities’ expenses processed through east-based banks, which Elkebir had not done previously.11
Some of Elkebir’s Tripoli-based opponents also claim that he funded the eastern authorities, an accusation the ousted governor vigorously denies: “Dabaiba tells militias that Siddiq gave billions to the east, but where is the evidence?”, he remarked in an interview with Crisis Group.12 The governor stated that he never gave any direct funding to the parliament-backed authority, which he said had financed itself since 2022 through public debt, referring to the parallel funding schemes that eastern authorities had used between 2014 and 2019.
Once the eastern authority had warmed to Elkebir, the Central Bank also started funding reconstruction projects in the east. In the first half of 2024, it allocated $950 million for “Eastern Province Reconstruction Projects Credits” that, according to the Bank’s internal reporting, were transferred to its Benghazi branch and managed directly from there.13 Elkebir acknowledged the transfer of this money, but said it was not “funding” for the eastern authorities but rather the Bank’s commitment to cover purchases in foreign currency that were necessary for reconstruction; these purchases, he said, would be paid for by eastern authorities in local currency.14
The wording of this allocation would appear to suggest that these funds were put at the disposal of the Libya Reconstruction and Development Fund, which the House of Representatives created in late 2023 and is headed by one of Haftar’s sons, Belghasem. The Central Bank’s documents are unclear, however, on whether all the allocation went to the Fund or if some of it headed to other reconstruction projects in the east.15
Efforts to build a bridge between the two rival governments based on shared economic interests extended to the state-owned National Oil Corporation, which manages crude oil sales and refined fuel imports. In mid-2022, a UAE-facilitated and U.S.-backed agreement between Haftar and Dabaiba paved the way for appointing Farhat Bengdara, a Haftar ally and former Central Bank governor under Qadhafi, to head the company. The deal’s terms were never made public, but diplomats and Libyan politicians say eastern authorities committed to keeping the oil fields and terminals open, under the Libyan National Army’s control, in exchange for receiving a specified portion of the oil revenues accruing in the Central Bank.16
The deal’s main negotiators, who also oversaw its execution, were Saddam, another son of Haftar’s, and Ibrahim Dabaiba, the prime minister’s nephew and one of his advisers. Foreign countries also backed it, in the belief, as a U.S. official said, that if “you patch together enough economic stability in Libya, maybe a political solution will come through”.17 But there was no breakthrough.
III. The August Crisis
In August 2024, the long-running dispute over the Central Bank blew up once more. This time, however, the allegiances were inverted: the Tripoli-based Presidential Council, which marches in lockstep with the Dabaiba government, tried to remove Elkebir, and the eastern House of Representatives rushed to his defence, declaring that he is still the legitimate governor.
A. A Bid to Replace the Governor
Tensions started to mount on 12 August, when the Presidential Council in Tripoli signed a decree that appointed Mohammed Shukri as governor to replace Elkebir.18 Neither published nor publicised, the document was circulated among the relevant institutions and then leaked within days. Observers quickly saw that it violated the stipulation in the Libyan Political Agreement of 2015 requiring the House and High State Council to agree on a new Bank governor.
In naming Shukri, the Presidential Council had simply invoked an edict that the House issued (and never withdrew) in early 2018, a few weeks after Shukri’s earlier failed appointment, calling on him to take office in Tripoli. The Presidential Council’s move had no legal validity, as the Council has no mandate to unilaterally hire and fire Central Bank governors.19
In a separate decree, the Council appointed a new board of directors. The new members included two deputy governors (Maraai al-Baraasi, who had been in place as deputy governor since 2022, and Abdel Fattah Ghaffar) and six others, all mentioned by name except for an unspecified deputy finance minister.20 Neither document has appeared on the Presidential Council’s website, but a Libyan official confirmed that the leaked versions are authentic.21
On 15 August, the House speaker’s office in Benghazi reacted by publishing an act that annulled the 2018 decree appointing Shukri, and instead reiterated that Elkebir and al-Baraasi are still the Bank’s top executives.22 The full House then issued a statement on 21 August announcing that it would appoint a new board within ten days. At the time of publication, it had not done so.
This new dispute over control of the Central Bank did not conform entirely to the traditional east-west divide. Inside the capital, responses also varied. On 20 August, Elkebir declared the appointment of Shukri and the new board “illegal and invalid”, arguing that the Presidential Council was not authorised to make the appointment in question.23
Several UN Security Council resolutions issued since 2015 appeared to support Elkebir’s contention that Shukri’s appointment did not adhere to the terms of the Libyan Political Agreement.24 On the other side of the political divide in Tripoli, High State Council head Mohammed Tekkala, a Dabaiba ally, condemned the House’s reaffirmation of Elkebir’s tenure on 16 August, claiming it violated the Libyan Political Agreement’s requirement that the House consult with the High State Council about such matters to reach consensus.25
All these competing claims over what constitutes a legitimate appointment hinge upon supposed compliance with UN-mediated deals signed in 2015 and again in 2021, which together have helped create Libya’s governing institutions. But these institutions have been in flux as political reality has shifted. The House of Representatives rarely acts as a genuine representative body, instead rubber-stamping what its speaker and Haftar’s entourage demand.
The High State Council is no longer the counterweight of the House, as it was when it was created in 2015; now it is split between two factions at odds over whether to negotiate with the east-based authorities. For its part, the Presidential Council, which is closely aligned with the Dabaiba government, is no longer the unifying interim authority it was meant to be when it was established in 2021. New alliances and dividing lines have emerged across the country, reshaping the pieces of Libya’s political puzzle.
B. Possible Causes of the Dispute
Why the dispute over the Central Bank governor broke out when it did remains something of a mystery, as the arrangements stemming from efforts to reunify the Bank and the National Oil Corporation deal had allowed both sides to tap into state funds. Libya had thus seen two years of relative stability.
That said, tensions had been brewing between Dabaiba and Elkebir for months before the current standoff. In February, the Central Bank governor and his allies complained about the Tripoli government’s high spending requirements and fuel subsidy bill.26 Libyan politicians allege that Elkebir blocked a number of the prime minister’s requests for funds.27 Conversely, as mentioned above, Dabaiba’s associates accused the Central Bank of providing “disproportionate” funding to the eastern authorities and eastern banks – a claim Elkebir dismissed as “a lie”, although he acknowledged that the Bank did transfer $950 million to the east to cover hard currency required for reconstruction projects.28
In March, the two men also clashed publicly over a new tax requested by the House of Representatives: a 27 per cent surcharge on the purchase of foreign currency. The governor proceeded to levy the tax over Dabaiba’s objections.29 Yet, despite these disagreements, diplomats following Libyan affairs were sure that the status quo would hold.30
There are three main hypotheses as to why the mutually beneficial arrangements collapsed.
1. First theory: a desperate act
The first theory suggests that the Tripoli government felt financially and politically cornered, compelled to act by circumstances. “The magnitude of the move tells me [the Tripoli authorities were feeling] massive desperation and hopelessness”, said a Libyan official. In his view, Dabaiba had no option but to sack Elkebir, because the Central Bank had been starving his government of funds for months. “They have been dealt a bad hand with Haftar, and this has left them out in the cold”, he claimed.31
According to this theory, the cooperative dealings between Elkebir and the east-based authorities, which started in 2022 and resulted in the House of Representatives confirming him in August 2023 as the governor, as well as the arrangement for management of the National Oil Corporation, redounded primarily to the benefit of the Haftar family.32
Supported by the Central Bank, the family’s companies have been carrying out real-estate development and infrastructure projects in parts of Benghazi, Derna and Sirte devastated by war, at least in part to buttress their popularity. Haftar associates frame this “battle for reconstruction” as a new strategy for “conquering” Libya.33 Dabaiba’s own efforts to rebuild destroyed cities in western Libya pale in comparison.34
A confluence of fast-paced events in early August may have added to Dabaiba’s perception that his political position was under threat. First, Egyptian Prime Minister Mostafa Madbouly invited the east-based prime minister, Osama Hamad, who is not recognised abroad, to pay an official visit to Cairo, prompting Tripoli to complain.35
Dabaiba suffered a second political blow on 6 August, when his ally Mohammed Tekkala appeared to lose the High State Council presidency to Khaled Mishri. The result is still hotly contested: Mishri claims he won by one vote, while Tekkala says a ballot for him was unjustifiably discarded. In any event, at the time of publication the High State Council remained split in two factions, those supporting Mishri on one side and those backing Tekkala on the other.
The two camps are divided mainly by their attitude toward Dabaiba: the Tekkala faction wants Dabaiba to stay on as prime minister, while Mishri’s wants to replace him. Sources suggest that should Mishri prevail, he would be inclined to ally himself with Aghela Saleh, speaker of the House of Representatives, to try removing Dabaiba. Saleh and Mishri have been allies on an anti-Dabaiba ticket before, most recently in 2022.36
Other challenges to Dabaiba’s position came from the east-based authorities. On 9 August, rumours began to spread about an impending offensive by Haftar-led forces on Ghadames, a desert city on Libya’s western border with Algeria that is held by Tripoli-aligned forces.37 While no such operation occurred, the speculation may have spooked officials in Tripoli. Later, on 13 August, Saleh announced that the House of Representatives was about to withdraw its recognition of the Presidential Council, a step it did not take when it withdrew confidence from the Daibaba-led Government of National Unity in 2022.38 In short, the argument goes, Dabaiba feared that his rivals were joining hands in a bid to oust him from power and, for this reason, he decided to make a move of his own.
2. Second theory: a soured pact
The second hypothesis suggests the Dabaiba and Haftar families were about to forge a pact that went sour at the eleventh hour. According to three people informed of relevant conversations, Ibrahim Dabaiba, the prime minister’s nephew and adviser, as well as others who wanted Elkebir removed, had been discussing the governor’s possible replacement for months with Saddam Haftar.39
The two men, who were the architects of the National Oil Corporation deal, are known to regularly consult each other over projects and budgetary issues. These sources believe that Saddam Haftar had greenlighted the appointment of Shukri and a new board of directors, promising to deliver the House’s endorsement, only to backtrack at the last minute due to alleged disagreements over nominations for other key posts.
3. Third theory: external interference
A third possible explanation relates to supposed external interference. A number of Western officials speculate that an unspecified European government sponsored the Presidential Council’s move “to push back on the Libyan National Army and put pressure on Russia”.40 Several Western countries are worried about Russia’s footprint in Libya. Moscow has developed good relations with both the Tripoli- and east-based governments, while materially supporting the Libyan National Army.
Between 2018 and 2023, the Wagner Group, a Russian private military company, had units covertly stationed in at least three military bases in the country. Since early 2024, Russian troops have docked in eastern ports while several hundred men believed to be operating under the defence ministry have been engaged in the east. Western officials suspect that east-based authorities are using some of the money transferred to them by the Bank to pay for Moscow’s military assistance.41
At least one European diplomat rejected the notion of outside meddling as fanciful, saying, “This sounds like a romantic interpretation that would help the Presidential Council save face”. He added:
The story is simpler: the Government of National Unity and the Presidential Council understood that, if the alliance among Aghela Saleh, Siddiq Elkebir and Khaled Mishri materialised, it would have destroyed them, so they took the initiative.42
The truth, for now, remains obscure.
IV. The Battle for the Bank and the Risks Ahead
While Libya’s competing factions wrangled over who was legitimately entitled to remove or appoint the governor, the Central Bank’s personnel came under threat, as did peace in the capital. On 18 August, an armed group aligned with Dabaiba and opposed to Elkebir briefly kidnapped the Bank’s IT manager, sparking fears of clashes among Tripoli’s rival militias, some of which support Dabaiba’s move and others of which do not. Simultaneously, armed groups from Misrata, Dabaiba’s hometown in western Libya, marched on Tripoli, although it is not clear what they were looking to do; eventually, they withdrew to the city’s outskirts.
At first, Elkebir refused to hand over the Central Bank’s headquarters in Tripoli to the officials in charge of ensuring that the newly – if improperly – appointed leadership could take over. Within days, however, these officials gained control of the building and installed new management, prompting Elkebir to leave the country.43 Elkebir claimed that some of the Bank’s employees were coerced “gangster style” into cooperation with the new managers, alleging that gunmen threatened the relatives of staff members – an accusation that the new managers deny.44
Violence in Tripoli was averted mainly because the Deterrence Force (al-Rada), a pro-Elkebir Tripoli-based group that secures the Bank’s premises, stepped aside when the new managers turned up at the building.45
The struggle over the country’s main financial institution intensified in the days that followed. On 23 August, Shukri declined his appointment as governor, saying he would accept the job only with the blessing of both assemblies.46 In response, on 26 August, the Presidential Council chose one of the two deputies, Abdel Fattah Ghaffar, as interim governor. Alongside a few other board members, he installed himself in the Central Bank headquarters in Tripoli.47
The dispute then spread to the oil sector. On 26 August, the east-based authorities ordered the oil fields under Haftar-led forces’ control to shut down in retaliation for the Presidential Council’s decision to replace the Central Bank governor.48 Data show that production dropped from 1.4 million to 590,000 barrels per day after three days of closure.49
Even though the new board managed to take over the Central Bank’s headquarters and social media accounts, the institution’s operating systems remained out of commission. It was unclear if the new leadership would be able to get those systems up and running, as shortly after the dispute erupted Elkebir had instructed the staff not to comply with the new authorities’ orders and to halt all work until further notice.50 Libyan bankers say he also directed the foreign correspondent banks – the British Arab Commercial Bank in the UK and ABC Bank in Bahrain – to stop transacting with Libyan commercial banks.51 These are the main institutions that Libyan commercial banks use to clear foreign currency transactions.
Elkebir confirmed to Crisis Group that these financial institutions and at least two dozen more had suspended dealings with Libya.52 He said the U.S. Federal Reserve and the Banca d’Italia, which clear U.S. dollar and euro transactions for the Central Bank, had done the same.53 Other Libyan sources nevertheless indicate that while dollar transactions have stopped, euro transactions have continued to take place.54
The new management, meanwhile, sought to reassure the public that operating systems would be restored and that payment of salaries would resume by 1 September.55 On 31 August, an official involved in the takeover said work at the Central Bank had returned to normal, with all systems functioning properly.56 The Tripoli government also sought to soothe Libyan businesses and the public, saying that replacing Elkebir would yield better governance and transparency in the Central Bank’s management.57 The reassurances seemed to work, at least at first.
Contrary to expectations, the dinar’s exchange rate did not collapse in the first week of the crisis, and cash was still available. There was no outcry in western Libya about the sacking of Elkebir, whom various political factions had demonised for years as responsible for the country’s economic woes. The new authorities also denied claims that the Bank had been disconnected from international financial markets.58
Those claims, however, were soon proven accurate. Local bankers reported that, as of the end of September, none of the foreign currency purchase requests submitted by traders to commercial banks over the previous month have been processed. They said the requests have been inserted in the Foreign Currency Management System (which banks use to request hard currency from the Central Bank), but the Central Bank has not approved any of them.59
Furthermore, for a few days after the crisis broke out the new managers could not get access to any Central Bank foreign account except for those of the Libyan Foreign Bank, an overseas institution owned by the Central Bank through which oil revenues pass before settling in its coffers. According to a Libyan banker, they ordered the Libyan Foreign Bank to keep oil revenues in its accounts.60
But even access to these accounts did not last long. A U.S. government official noted that all foreign financial institutions had suspended transactions with Libya’s Central Bank by 5 September, and by then most had also stopped doing business with the Libyan Foreign Bank because it is solely owned by the Central Bank, and as such was affected by the same restrictions stemming from the unresolved leadership dispute.61
The official highlighted that some commercial banks in Türkiye and the United Arab Emirates might still be doing business with the Libyan Foreign Bank and its subsidiaries, but risked being cut off by other financial institutions should they be discovered.62 Libyan sources, however, suggest that at least two Europe-based commercial banks owned by the Libyan Foreign Bank also continued to process euro transactions during the crisis.63
In the meantime, opposition to the change in command at the Central Bank also spread. On 3 September, the Court of Appeals in Benghazi, which operates in eastern Libya where the parliament and the Haftar-led forces are based, ruled in Elkebir’s favour, declaring that the Presidential Council had acted illegally in appointing a new governor.64 Soon after, the mood in western Libya also began to sour.
Leading traders in the capital voiced concerns that stores of food would run out within three weeks if imports did not resume; and in Prime Minister Dabaiba’s hometown of Misrata, armed groups announced that they would mobilise against the government for its decision to replace the governor should the economy go into freefall.65 But the Tripoli-based government continued trying to reassure people. On 22 September, Economy Minister Mohammed al-Hweij stated that the country had a stockpile of essential foodstuffs that would last three months; he also promised that banks would resume issuing letters of credits for imports within a week.66
For the first time since the feud’s outbreak, some good news emerged on 26 September. Under the aegis of the UN, representatives of the House of Representatives and of the rival Tripoli-based High State Council, meeting at the UN headquarters in Tripoli, signed a preliminary agreement to resolve the crisis. The deal stated that the two assemblies had agreed to appoint Naji Issa, a veteran Central Bank manager, as the new governor, and Maraai al-Baraasi as his deputy.
Besides these appointments, the two sides also established a number of conditions for the deal to move ahead. They stipulated first, that the House must ratify the appointments within a week; secondly, that after consultations with the House, the governor must appoint a board of directors within two weeks; and thirdly, that any decision about Central Bank administration that was not taken in compliance with the Libyan Political Agreement should be declared null and void.67
Whether the Presidential Council, the institution that triggered the feud in the first place, has signed on to this agreement is unclear. A member of the Council was present at the signing ceremony as a witness, but he was not a signatory, and nor has he explicitly stated that the Council will revoke its August appointment.68 Neither the Council’s president, Mohamed Mnefi, nor Prime Minister Dabaiba has issued a statement.
How the situation will unfold is uncertain. Libyans informed of the deal suggest that there is a strong possibility that the Presidential Council will bless it and eventually retract its appointment of a new governor in August. If it does, ties to the circuits of international finance could be reinstated rapidly.
But much might still go wrong. Libyan politicians have a well-established record of signing preliminary agreements only to backtrack at the last minute. The looming question is now whether the House will ratify the deal. If it does not, or if any other impediment gets in the way of the deal, economic conditions could deteriorate fast.
Libya is a country that depends heavily on its foreign currency revenues to cover government expenditures such as subsidies, funds for oil-sector development, scholarships and payments for medical treatment abroad, as well as commercial imports (see Appendix A). Should citizens see that shops are becoming empty due to a lack of fresh supplies (which is not yet the case), public discontent would likely surge.
The possibility of this outcome has receded in recent days, as the two sides look to a compromise solution. Even without a deal in place, in the short run, the Central Bank can still disburse the Libyan dinars it has or eventually print more in order to pay public-sector salaries. As long as the new Central Bank managers can tap foreign funds via subsidiaries of the Libyan Foreign Bank or other foreign banks, bankers and economists say, the immediate effects of the crisis can be contained.
Still, if the new deal stutters and the dispute over the Central Bank persists for many more weeks, oil exports will remain low, and the Central Bank will be unable to draw on reserves on deposit in U.S. and most European banks, or issue letters of credit for imports. In such a scenario, the risks become far greater. One Libyan banker said:
Since the economy depends entirely on oil sales, the bank must sell $2 billion every month to create the liquidity to pay [among other things] for monthly salaries. If there are no salaries, there is no liquidity in the market and the foreign exchange will go through the roof. If there are no imports, prices will go through the roof. If people are not paid their salaries, they will protest. Violence could ensue, especially on the part of the militias that are not being paid.69
Commenting on what could happen if there were no resolution of the Central Bank crisis, a U.S. official said:
“There will be a breaking point when people decide to revolt, when you start to see real shortages and people push back on the ground. It could be a week; it could be a month; it could be three months. We just don’t know”.70
If this moment were to come, the likely target of popular ire would be the Tripoli government, which people would hold responsible for the meltdown. “One cannot rule out the toppling of the Dabaiba-led government and a war”, the Libyan banker speculated.71
V. Foreign Reactions
The Presidential Council’s move elicited criticism from outside Libya, with key figures reproaching its unilateral nature and highlighting its potentially destabilising impact on the Libyan economy. On 26 August, the UN Support Mission to Libya (UNSMIL) stated:
The Mission believes that continuing with unilateral actions will come at a high cost for the Libyan people … and risks precipitating the country’s financial and economic collapse.72
On 28 August, UN Security Council members echoed concern about the mounting crisis around the Central Bank, calling on “all Libyan political, economic and security leaders and institutions to de-escalate tensions, refrain from use of force or threat of use of force or any economic measures designed to exert pressure”.73
The critical stance taken by the U.S., given its importance to global financial markets, has been particularly significant. Washington’s reaction is all the more important to Libya because the country’s oil revenues are in U.S. dollars and most of its reserves are held in U.S. banks. On 27 August, the U.S. embassy in Tripoli warned of the consequences of “undermining confidence in Libya’s economic and financial stability in the eyes of Libyan citizens and the international community”.74 On 31 August, the State Department weighed in, too:
The uncertainty created by recent unilateral actions has led U.S. and international banks to reassess their relationships with the [Central Bank of Libya] and, in some cases, pause financial transactions until there is more clarity on [its] legitimate governance. We are concerned that further disruptions with international correspondent banks could damage the Libyan economy and well-being of Libyan households.75
While the U.S. did not rule out the possibility of recognising the Bank’s new management, officials said they would not condone the new setup without consensus in Libya itself.76 The U.S. Treasury, which historically has had close ties with the Central Bank of Libya and is the go-to institution for Western banks seeking guidance on when to resume operations with Libya, has not taken a position in favour of one governor or the other. Nor has it signalled intent to freeze the Central Bank’s assets. But it has made clear that it wants to see rival factions settle the dispute as a first step toward unlocking international transactions with the Bank.
Settling the dispute would mean getting all the parties to approve an interim governor with the experience to manage a Central Bank, pending a permanent resolution, said a U.S. government representative who follows the matter closely. As to whether this deal should stick to the letter of the Libyan Political Agreement that envisages consultations between Libya’s rival assemblies, he underscored that besides the requirements for such an agreement, the Presidential Council should also sign off. The important thing is “ending the dispute between all parties”.77
France and the UK have joined the U.S. in calling on everyone concerned to reach a compromise.78 On 26 September, the UN greeted news of the preliminary agreement signed by representatives of the House of Representatives and the High State Council as “positive and promising”.79
VI. What Should Happen Now?
Libyan politicians’ immediate priority should be to implement the preliminary deal signed on 26 September. The House of Representatives and High State Council, as well as the Presidential Council, should all do everything in their power to allow the new appointee Naji Issa to take over as Central Bank head and allow for establishing a board of directors. The board should be an active one, charged with enhancing the institution’s transparency and accountability. Oil production across the country should also resume.
Reaching a preliminary deal was by no means an easy feat. Talks to resolve the crisis began on 2 September, hosted by the acting head of the UN Support Mission in Libya, Stephanie Koury, at the UN headquarters in Tripoli. She envisioned them as trilateral consultations among representatives of the Presidential Council, House of Representatives and High State Council aiming “to reach a consensus based on political agreements, applicable laws and the principle of the Central Bank’s independence”.80 But the two assemblies’ representatives refused to negotiate directly with the Presidential Council’s emissaries, and the latter were relegated to a separate room.81
As late as 23 September, two rounds of talks had produced no agreement. But informal conversations among key figures reportedly continued. On 25 September, quite suddenly, according to UN sources, the delegations informed the UN that they had reached an agreement on new management, asking Koury to host a signing ceremony the following day.82
This initial agreement between the two rival assemblies is not a done deal, and as noted above, much could still go wrong. A first priority should be to ensure that the Presidential Council also backs the new appointments and is ready to revoke its controversial August decree. The two assemblies’ refusal to sit with Presidential Council representatives during the UN consultations is hardly surprising. The House of Representatives stopped recognising the Dabaiba government in 2022 and recently threatened to do the same with the Presidential Council.
Their strategy in the talks could well have been to buy time to let the economic crisis hit in the hope that public opinion will turn against the Dabaiba government, which they blame for triggering the dispute. As for the High State Council, its new acting (but still contested) president, Khaled Mishri, likely wished to keep the Presidential Council out of the picture so as to deal directly with the House speaker, Aghela Saleh, which is what the two assemblies have done in the past.
The fact that the two assemblies signed this preliminary agreement does not mean that they have given up on undermining the Dabaiba-led government. Yet, with a deal now on the table, the leaders of the two assemblies would be ill-advised to proceed without ensuring that the Presidential Council and Prime Minister Dabaiba are on board. Although the UN-backed procedure for selecting the Central Bank head has since 2015 required only the two rival assemblies’ consent, in the current fractured political set-up the Presidential Council’s buy-in is crucial for reaching a stable agreement and preventing an economic meltdown. Broad consultations that include all major institutions are essential for reaching consensus on how to resolve the dispute. Keeping the Presidential Council out risks encouraging it to become a spoiler.
Furthermore, as foreign officials have clearly stated, the Presidential Council’s buy-in is a prerequisite for international financial institutions to consider the dispute over the Central Bank’s leadership closed and to unlock suspended transactions with Libya. For that to happen, all parties would need to recognise the same person as interim governor, and the Presidential Council would need to explicitly revoke its August appointments.
A second priority is to ensure that the House of Representatives officially ratifies the appointment in accordance with Libyan law and the Libyan Political Agreement. On several occasions in the past, members of the House have reached preliminary political deals with their rivals, only to see Saleh or the House as a whole renege at the last minute. This time, members of the House should collaborate in good faith to finalise as quickly as possible their endorsement of the new governor and a board. Once the House ratifies these arrangements, a peaceful, legally valid handover of the Central Bank will need to take place to avoid any further disputes regarding the new management.
For the UN, meanwhile, this crisis represents an opportunity to reset its negotiating approach to Libya by adding economic and financial discussions to existing political talks. Between 2018 and 2021, the UN was actively engaged in mediating budgetary disputes and other economic and financial disagreements. In 2020, it even integrated a separate economic track into the diplomatic framework, alongside the political and military ones. These talks included some of the feuding financial institutions’ representatives, as well as bankers, economists and other competent experts. But since 2022, successive UN envoys have neglected economic issues in favour of political discussions. The Central Bank crisis is a powerful reminder that the fight over finances is an integral part of the overall conflict and has huge repercussions for people’s well-being. Yet UN-led talks have stalled for over a year, and since UN Special Representative Abdoulaye Bathily resigned in April there has been no permanent envoy for Libya.
The UN Secretary-General should appoint a new Libya special representative, whose active mediation efforts Libya sorely needs. Should naming a new envoy prove impossible, due to divisions within the UN Security Council, the Secretary-General should appoint the interim head, K
oury, as acting special representative, a step up from her current role as “officer in charge”. He should make this move before the next UN mission mandate renewal vote, which is due before the end of October.
VII. Conclusion
Time is of the essence in resolving Libya’s Central Bank dispute. If the preliminary deal signed on 26 September falls through and the feud between rival authorities continues, outside partners will continue to keep Libya disconnected from international financial markets, aggravating the risks of an economic collapse. Although a limited number of foreign financial transactions are still taking place, a prolonged cutoff could take a devastating toll in Libya, a country which is almost entirely dependent on oil revenue to cover government expenses and which imports virtually all its essential needs, including foodstuffs and construction materials.
Reaching a preliminary accord to settle this dispute is a major achievement, but the wrangling over the Central Bank is far from over. That said, rival factions have a shared interest in avoiding a sharp deterioration in living conditions, which could trigger popular protest or violent unrest. They should now work in good faith and, with the UN’s help, aim to implement the deal by allowing the new governor to take over the Central Bank and appoint board members. Reconnecting Libya to global financial circuits is crucial, but it should happen only through arrangements that include all the country’s main political forces and respect agreements that have already been struck.
Tripoli/Benghazi/Brussels, 1 October 2024
For Appendices and foot notes, visit: https://www.crisisgroup.org/sites/default/files/2024-10/b093-libya-central-bank_0.pdf
