* Libya burning reserves due to oil export blockade
* Dinar down more than 7 percent on black market since April
* Official rate needs to be devalued - business leader
* Central bank blames speculators, rules out changing
* Bank robberies exacerbate dollar shortages
By Ulf Laessing
TRIPOLI, June 3 Libya's currency is under heavy
pressure as a breakdown in security and a collapse of oil
revenues due to port blockades have badly disrupted public
finances and an economy already burdened by exploding state
salary and subsidy bills.
Over the past two months, the dinar has fallen more than
seven percent against the dollar on the black market, its first
weakness since rebels demanding autonomy for eastern Libya
seized oil export facilities 10 months ago.
Now, even private importers say the dinar's stronger
official exchange will have to be devalued as revenue from crude
all but dries up, although the central bank insists it can hold
the line thanks to large foreign currency reserves.
Compounding the financial problems, a wave of bank robberies
has made the central bank reluctant to supply commercial lenders
with hard currency, exacerbating shortages of dollars in some
parts of the economy and further undermining the dinar.
Some insurance companies have also become less willing to
provide cover for cash shipments of dollars from the central
bank's overseas accounts to Libya for security reasons.
Libyans seeking hard currency are now rushing to the
parallel market, which has become an unofficial benchmark for
the exchange rate. There a dollar buys 1.40 dinars compared with
1.35 two weeks ago and 1.30 in early April, dealers say.
Business leader Husni Bey said the central bank was still
supplying importers with enough dollars, despite a collapse in
oil production to 150,000 barrels per day (bpd) from 1.4 million
last July before the blockade began - with part of the tiny
remaining output needed for domestic refineries.
But he told Reuters that the official rate - which the
central bank fixes in a band against major currencies and has
held steady throughout the crisis at around 1.25 to the dollar -
is overvalued regardless of the blockade.
"The Libyan dinar should be devalued in stages to a more
realistic level even if full oil exports are resumed at 1.6
million bpd," said Bey, who is chairman of HB Group, one of
Libya's largest private conglomerates which sells imported
Western consumer goods.
The loss of oil revenues has forced the central bank to dip
into its reserves to fund a $50 billion budget which goes mainly
on price subsidies and civil servants' pay.
Any spending cuts would be hugely unpopular with Libyans,
used to bread costing two U.S. cents and filling up their cars
for less than $5, as well as free health care and education.
Libya, a country of 6 million, has 1.5 million civil
servants, a legacy of rule by Muammar Gaddafi who before his
overthrow in a 2011 civil war put adults on the payroll in the
hope of discouraging opposition.
Bey said state spending was exploding with the bill for
public salaries up 250 percent since 2010 - as Libya's new
rulers use similar tactics to ease social tensions and pay off
the militias that brought down Gaddafi and now largely control
Libya also needs hard currency for annual imports worth $30
billion. With no sizeable food production, even basic products
such as milk, mineral water and vegetables are shipped from
Europe, Tunisia or Turkey.
The central bank has blamed currency speculators for the
dinar's drop, insisting Libya can hold out for three and a half
years without oil income thanks to foreign reserves exceeding
$100 billion, accumulated during years of high oil prices.
When asked whether the central bank would consider a
devaluation, spokesman Musbah Alkari said: "We don't plan to
lower or increase the value of the dinar."
The central bank - one of the few respected state
institutions left after four decades of one-man rule by Gaddafi
followed by chaos since the uprising - has ruled out a currency
But Governor Sadiq al-Kabir warned last week that Libya had
earned only 4 billion dinars from energy exports between the New
Year and end of April, less than a quarter of the budgeted 18
billion. "The amount of four billions doesn't even pay the
(state) salaries," he said in a statement.
With a quarter of Libyans on the state payroll, his deputy
Ali Mohamed El-Hebri hammered home a message that change was
needed, saying the country had added 400,000 civil servants
since the civil war. "Based on international standards the ratio
should be 8 to 10 percent of the total population," he said.
The central bank has tried to avoid burning through the
foreign reserves which have nevertheless fallen to $110 billion
from $132 billion last summer.
Since lawmakers have failed to approve a budget in the
absence of fresh oil money, the central bank has granted 12
billion dinars to parliament since January to keep the country
running, according to the budget committee.
A Western diplomat said part of the central bank reserves
were invested in long-term overseas assets such as equity
stakes. "It's not all cash readily available. They can't run the
country for two years on central bank money," he said. "There is
also a huge maintenance bill waiting as the oil fields stand
idle. It would take a long time to restart production."
The central bank's attempts to preserve reserves has caused
friction with the government and parliament, which wants funds
to keep paying public salaries. Outgoing premier Abdullah
al-Thinni has accused Kabir of acting like "Libya's absolute
ruler" by blocking spending even when it had been approved.
Matters were complicated last week when Thinni refused to
hand over power to the cabinet of his successor Ahmed Maiteeq,
leaving open the question of which minister can instruct the
central bank to release funds.
While diplomats agree the central bank can hold out for a
while by burning though reserves, the surge of robberies poses
an immediate threat to the banking system.
Almost every week gunmen rob bank vans or storm branches to
force staff to open safes. An employee at state-owned Jumhuriya
bank was shot dead in the southern city of Sabha in April.
That has made the central bank reluctant to move dollars to
commercial banks, and several clients told Reuters they could
withdraw money from their dollar accounts only in dinars at the
unfavorable official exchange rate.
Even dinars can be in short supply, with banks outside the
capital Tripoli sometimes complaining they go for days with no
banknotes in their safes.
"The problem of the lack of liquidity at commercial banks is
because of a lack of safe transport," Kabir said. "The central
bank has asked the legislative authority to secure these money
(shipments) to commercial banks but to no avail."
Libya's police and army are no match for the battle-hardened
militias who, officials say, often work with accomplices in
regular forces who tip them off when a van leaves the central
bank or a plane loaded with banknotes arrives at a provincial
Bey said some commercial bank staff were working with black
market traders to hold back dollars through the regular bank
channels. "The present premium paid for the cash in the parallel
market is due to manipulation, abuse and connivance between
black marketeers and bank employees," he said.
(Editing by David Stamp)