The eastern branch of the Libyan Business Council (LBC) reported yesterday that economist, and its Advisor, Dr. Mohamed Al-Safi, warned against continuing to finance Libya’s budget deficit through public debt.
Speaking on Libyan satellite TV, he explained that increasing the money supply without addressing the root causes of the deficit leads to a decline in the purchasing power of the Libyan dinar, a surge in demand for the US dollar, and rising commodity prices—effectively turning inflation into an indirect tax paid out of the citizens' own pockets.
Al-Safi noted that citizens can lose a portion of the value of their money even without spending it; he cites the rising prices of furniture and other goods during the months a person might wait for their turn in a savings cooperative as an example.
He emphasized that the problem is not merely the rising cost of products, but rather the erosion of the dinar’s purchasing power, which translates to a decline in the value of citizens' savings.
Al-Safi pointed out that while some countries may use the creation of new money to finance a deficit during economic crises—as a temporary measure to stimulate economic activity—Libya has relied on this mechanism since 2014, both in the east and the west of the country. Instead of addressing revenue shortfalls by controlling spending and implementing genuine fiscal reforms, the authorities have opted for this approach.
Al-Safi warned that the continuation of this policy poses a risk to the Libyan economy. He further cautions that more goods—such as cars, mobile phones, and clothing—may begin to be priced in US dollars, which would further intensify the cost-of-living pressures on citizens.
Al-Safi emphasized the necessity of ending the persistent reliance on financing the deficit through inflation, and of implementing radical economic reforms that address the root causes of the deficit while protecting the purchasing power of the dinar and the wealth of the Libyan people. He warned that the market will not wait for reforms but will instead adapt to the prevailing economic conditions.