Letters of credit (L/Cs) for Libya's formal economy are beginning to flow again according to the deputy prime minister of the UN-backed Libyan government, Ahmed Maiteeg.

He says this is a result of reforms aimed at ending Libya's long-running liquidity crisis by early 2019 as a foreign currency tax helps the official and black market exchange rates converge.

L/C abuse

For the past few years, L/Cs available from Libya's central bank have been routinely used by militias and organised criminals for a variety of foreign currency scams. They exploited limited L/C availability and a volatile Libyan dinar that between 2014 and 2017 fell by as much as 600 per cent on the parallel black market.

According to Maiteeg, economic reforms are effectively now bringing the black market rate more in line with official exchange rates, which is limiting the opportunities to use L/Cs in exchange rate scams.

Exchange rate stability

While Maiteeg is optimistic, previous governments have tried to reform the Libyan economy but have faced resistance from the armed groups for whom smuggling and L/C scams became a lucrative source of income, suggesting the militia will not roll over easily.

But Maiteeg insists that L/Cs that had been restricted due to falling dollar revenues and the import scams are now freely available at a rate of 3.9 Libyan dinar (LD3.9) to the US dollar and that credit of more than US$1 billion was extended in October.

"Now there is no need to have a militia, or pressure the central bank to have an L/C. Anyone who wants an L/C at LD3.9, just apply and you will have it," he said.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.