Libya under pressure to devalue currency

Bloomberg

Libya’s UN-backed government is under mounting pressure to devalue its currency, joining other energy producers from Nigeria to Kazakhstan that have buckled in the face of tumbling revenue and domestic turmoil.
The dinar has been steadily weakening on the black market over the past year as the nation’s political rifts thwarted a recovery in oil output. It hit a record low of 7 to the dollar this week, according to currency dealers in Tripoli. The official rate is 1.4.
The currency crisis is undermining Prime Minister Fayez al-Serraj’s efforts to unite a country fractured by five years of conflict following the 2011 ouster of Muammar al-Qaddafi, leading instead to public discontent as prices surge. Libya is split between two rival administrations and militias vying for power in the holder of Africa’s largest oil reserves.
Officials from the Tripoli-based central bank attended meetings along with other government members earlier this month in Rome. There they discussed a possible devaluation of the dinar and a removal or reduction of fuel subsidies, deputy minister of finance Abu Bakr al-Jafal said in an interview. Representatives of the central bank in eastern Libya also see a need for a devaluation to crush the black market, but say they must be involved in the decision.
“Devaluation is a must,” said Ali Jihani, an official at the eastern regulator, based in al-Bayda. “We might suggest making two exchange rates — one for national imports, and another higher one for business importers and personal transfers.” But if officials in Tripoli attempt to impose a solution on the east, there “will be consequences,” Jihani said by phone without elaborating.

‘FRAGILE FIVE’
While the oil-price slump has battered all energy producers, OPEC’s most vulnerable nations were dealt a double blow of sharply lower revenues and the increased risk of political turmoil. This includes Algeria, Iraq, Libya, Nigeria and Venezuela, a group dubbed the “Fragile Five” by RBC Capital Markets Ltd.
In Nigeria, a black market for foreign currency has boomed since the crash in oil prices strangled the inflow of dollars. The central bank has made several attempts to defend the naira after it plunged to a record in 2014, including a tightening of capital controls and restricting banks’ ability to trade foreign-exchange, as well a currency peg that deterred foreign investment and worsened the shortage of dollars companies need to pay for imports.
With the World Bank estimating inflation will average about 20 percent this year in Libya, the Presidential Council on Monday allocated 300 million dinars to import food and distribute it at fairer prices.