Emerging Markets: Libya’s Central Bank Governor, the World’s Most Challenging Job?

Emerging Markets, October 2014

NB: first six paragraphs by another writer

The chaos and factionalism that has characterized Libyan politics since the overthrow of Muammar Gaddafi in 2011 has highlighted how total the former dictator’s control over the state’s institutions was. The country’s government has struggled to maintain the country’s cohesion as militia groups and warlords jockey for position and influence. Key economic infrastructure, including oil terminals and at one stage the airport, have been seized and held by armed groups operating independently of the central government in Tripoli.

These disruptions have curtailed oil exports, which make up 95 per cent of the government’s revenues, while Tripoli has increased social spending and given lucrative contracts for security work to militia groups, effectively paying off the rebels and society at large to try to alleviate social tension. Salaries have been increased, and 70 per cent of the 2013 budget was spent on government wages. Tax collection is weak, and subsidies mean that Libyans are used to cheap bread, fuel and transport.

The country’s foreign exchange reserves have shed around $16 billion in the past 12 months and although Libya retains a healthy $100 billion pot, the continual drawing down of reserves worried the central bank governor, Saddek Omar Elkaber, who, in March had to give a $2 billion emergency loan to the government. The governor urged a political solution to the continual disruptions to oil exports and called for the subsidy system to be reformed to prevent Libya’s oil wealth from dwindling away, stepping into the polarized and highly charged political arena.

Elkaber has emerged as a rare dissenting voice against fiscal slippage in Libya, refusing further giveaways to the government and standing up to the political pressure that resulted from his actions. Calling the government revenue projections that underpin the $53 billion budget for 2014 “grossly exaggerated”, Elkaber has been pilloried by the country’s prime minister, Abdullah al-Thinni, who raged that the governor was “acting like the ruler of Libya” in a television interview in April.

Elkaber’s intervention may have angered the government — whose survival depends on its ability to appease the many factions that hold sway in post-Gaddafi Libya — but it is vital for the country’s long-term economic sustainability.

“Basically, the central bank is trying to ringfence its stock of reserves from political influence and factional infighting,” says Pat Thaker, director for the Middle East and Africa at the Economist Intelligence Unit. “By doing that, the CBL is trying to maintain an independent line on fiscal and monetary policy, and that is very important.”

[Interview – from here on is mine]

Emerging Markets reaches Libya’s central bank governor, Saddek Omar Elkaber, in Malta, and the thought occurs that perhaps the whole central bank has moved here: it wouldn’t be the first time a MENA central bank had moved offshore to operate away from civil war or occupation. But Elkaber says he plans to be back in Tripoli the next day, fulfilling the bank’s duties with as much professionalism and transparency as it can muster.

“It is even more important to preserve the integrity of this institution during this unstable and critical phase of the country’s development,” says Elkaber, who took the job on in September 2011. “Yes, it’s very challenging. But we’ve been able to manage open discussions with all parties, to try to convince them of the central bank being alone, and not to be pressured.”

At times the central bank appears the most stable single voice in Libya, since it continues to operate no matter how profound a vacuum exists in the country’s political leadership. “We are facing a huge problem. We have two governments: one in the east, one in the west. But the central bank still functions from its headquarters in Tripoli,” unlike several arms of the government itself, which at one stage was so beset by militias that it took refuge in a Greek car ferry moored in Tobruk.

“The challenges facing the Central Bank of Libya are huge,” says Elbarek. “There is safety and security, human development, the autonomy and integrity of the institution, capacity-building, fighting corruption, maintaining stability in the banking sector, establishing the right environment for the private sector to be established and to grow locally, and paving the way for international investors to come – which,” he adds, “as you know, is not the right time right now.” But can anything be achieved in such an environment? He says that “except for the last two months,” the answer is yes: Libya is working with the IMF and World Bank on capacity-building, and is trying to modernize the banking sector and improve the infrastructure that supports it. “But in this interruption for the last few months, we almost stopped everything.” Building capacity is a particular challenge. The Libyan diaspora is talented and impressive, from the UK to the US and Canada, “but because of the problems with security and safety, we will not be able to attract the right people to come and help us.”

Nevertheless, asked whether he is optimistic about Libya, he says he is, provided “we can gather all the parts together and try to come with one government and build the way for the new parliament to move forward in a responsible way.” Instrumental in Libya’s future will be oil, which was blighted by a drop in exports from 1.2 million barrels per day, generating $4.5 billion of revenue per month, to a low of 200,000 per day; he says due to a fast-track recovery programme, production had topped a million barrels per day by the end of September, and that revenues were $2 billion for the month. “Hopefully the exports are increasing, which is a good sign for us,” he says. “We have been hurt badly by [the reduction in exports]: our reserves dropped from $135 billion to below $100 billion as of August.” Now, he says, “it is building up again.”

Everything, though, comes back to security. “Safety and security is the most important thing for everyone in Libya. We need to promote the rule of law as a fundamental value of the new Libya.” Beyond that, his priorities include corruption – “due to the roots of this behaviour that have taken place in the last few years” – public financial management reform, subsidy reform, diversification of the economy and sound monetary policy, “to maintain price stability and reduce unemployment, which stands at 30%”.

And is the central bank, in the absence of clear government, going to have to lead this work? “I think the role of the central bank since 2011 has really become leading,” he says: “Leading change, finding corruption, taking different initiatives to modernize the way the government runs, and the supervision of public funds. We will continue doing this.”