Libya's rival parties make progress on ending central bank crisis, UN says

Banking operations and oilfields have been severely disrupted since Tripoli authorities fired bank chief

Cash at a bank in Libya's western coastal city of Misrata. The UN held talks with the country's rival powers over the central bank crisis. AFP

The two competing legislatures in divided Libya have made progress on reaching an agreement to appoint a new governor for the central bank amid a feud that has severely disrupted financial transactions and oil production.

UN mission in Libya said that Tripoli’s High State Council and the Benghazi-based House of Representatives had “reached important understandings”. The two parties had asked for extra time for further consultations.

“The representatives of the two chambers requested an additional period of five days to complete their consultations towards a final consensus on the arrangements of the management of the CBL [Central Bank of Libya] until a new governor and board of directors are appointed,” the UN said, without naming candidates. The UN also called on both sides “to refrain from any unilateral decisions and actions”.

The dispute over control of the central bank has plunged Libya into a state of uncertainty after the government in Tripoli controlling the west of the country dismissed long-term governor Sadiq Al Kabir two weeks ago. Major banking operations, including the wiring of salaries for at least two million public sector employees, have been disrupted and a state of force majeure was declared for most oilfields by the Benghazi-based administration in the east, prompting an increase in oil prices on world markets. Oil production has since partially resumed to meet domestic needs.

Since an uprising, backed by western nations, ousted dictator Muammar Qaddafi in 2011, Libya has been divided between the two governments, with the Benghazi-based Government of National Stability and Tripoli’s National Unity Government both claiming a right to lead the country. In the years after the uprising, the central bank remained one of the few functioning state institutions and managed to stabilise the country to a degree by keeping an equal distance from the rival factions and balancing the distribution of oil revenue between them.

According to Jalel Harchaoui, a Libya analyst and associate fellow at the Royal United Services Institute, the current crisis has been building up for months with a deterioration in the relationship between bank chief Al Kabir and Abdul Hamid Dbeibah, prime minister of the Tripoli-based administration.

“A very visible antagonism and dispute between Dbeibah and Al Kabir has been noticeable for months, and it has now culminated past the point of no return,” he told The National.

Mr Al Kabir, who has been bank governor since 2011, reportedly stopped providing funds to Mr Dbeibah and his allies in the months leading up to his dismissal. He accused the officials of overspending on salaries, development projects and personal privileges.

“By the end of 2023, there were many visible clues indicating that Kabir stopped providing credit for all the businesses associated with Dbeibah, making him feel strangled,” Mr Harchaoui said. “Once things become untenable, it’s going to explode at some point.”

Many fear the central bank feud could spark a fresh cycle of violence. Ordinary Libyans, who have borne the brunt of previous crises, are concerned about the effect it could have on already deteriorating vital services, infrastructure and purchasing power.

“I think Libyans are going to suffer tremendously because of the economic ramifications,” Mr Harchaoui said. “Things might have to get much worse before we hit rock bottom.”

He does not rule out a return to armed conflict if a consensus is not reached.

“If you persist with this kind of atmosphere, it’s going to normalise a potential return to violence. People will become more tense so that it would become more probable, especially in such moments of confusion.”