On 8 July 2021, Special Envoy of the Secretary-General for Libya and Head of the United Nations Support Mission in Libya (UNSMIL) Ján Kubiš formally transmitted the final reports of the International Financial Audit Review to the Presidency Council and the heads of the two Central Bank of Libya (CBL) branches, Governor Kabir and Deputy Governor Hibri. The transmittal closes a three-year process initiated by the former head of the Presidency Council (PC), Fayez Serraj, who requested support from the UN to conduct the Review.

As requested by the PC and mandated by the UN Security Council, the Review seeks to create the conditions and provide recommendations to unify the CBL thereby improving public confidence, transparency, and integrity of the banking sector.  UNSMIL facilitated the process that included concluding the terms of reference for the Review with both CBL branches. To ensure independence and best practice, the United Nations Office of Project Services (UNOPS) managed the procurement process that resulted in the selection of Deloitte as the independent auditor.

The main finding of the Review is that the unification of the CBL is no longer simply recommended but required. The division complicates access to foreign exchange, impedes monetary reform, and undermines the integrity and oversight of the commercial banks. The division, in combination with the lack of a unified budget, contributed to both banks accruing debt to finance the respective former governments.

On a positive note, Libya has no foreign debt and its historic accumulation of foreign currency reserves through oil sales has been largely protected.  Since December 2014, Libya’s foreign exchange reserves have only diminished by 8%. This reduction is primarily due to the liquidation of LYD 15 billion of the Mujanab Portfolio in 2016 to mitigate losses caused by the reduction in oil production. The Mujanab portfolio is an asset portfolio held by the CBL Tripoli for ‘special or emergency situations. The national reserves were protected primarily by reducing both spending and access to foreign currency.

Between September 2014 to June 2020, the reporting period, the total amount of currency in circulation increased significantly due to both CBL branches printing Libyan Dinars. Successive oil blockades and the extension of overdraft spending in combination with the rapid printing of Dinars created pressure on the exchange rate, ultimately resulting in the devaluation of the Libyan Dinar to the US Dollar by over 300%, effective 3 January 2021.

Another finding of the report is that Libya remains nearly entirely dependent on oil sales as its primary source of revenue. During the reporting period, income from hydrocarbon sales averaged 84% of total public revenues while its tax and customs collection remained narrow. The imposition of the 183% foreign currency exchange fee from September 2018 was a temporary source of revenue, which was suspended indefinitely in January 2021 as a result of the devaluation.

In regard to expenditures, Libya’s foreign currency revenues, generated almost exclusively from oil sales, are primarily used to facilitate trade finance for public and private sector organisations to facilitate trade finance. They were also used to disburse funds through programs such as the Family Allowance. The report highlights opportunities to reform and improve the Letter of Credit issuance process.

Today’s handover of the report completes the Financial Review process of the two CBL branches, providing them both with the information and guidance needed to begin the unification process. The report provides a series of recommendations to restore the integrity of the CBL and improve its transparency, including but not limited to the adoption of International Financial Reporting Standards, assessment of the impact of the devaluation of the LYD, and establishment of effective governance and internal controls.  UNSMIL is ready to continue to support the unification process.