The current assault on Tripoli is having immediate economic as well as security consequences. The internationally recognised Government of National Accord (GNA) has allocated LD2 billion — or US$450 million at the real exchange rate — to respond to Haftar’s assault on Tripoli. It had already allocated roughly the same amount to respond to Field Marshall Khalifa Haftar’s self-styled Libyan National Army’s (LNA) operations in the south. This is all in addition to the controversial ‘financial arrangements’ (2019 Budget) that was agreed earlier this year between the GNA and the Tripoli-based central bank.

Meanwhile the LNA has also been raising funds for its own operations, fighter salaries, and new equipment by selling debt through bonds with 3% interest rates through the rival eastern central bank. Payments on these loans are not due until around 2035 but the continued fighting will increase the debt owned by overseas bondholders, and leave the country’s youth with the responsibility of paying it back.

Significant foreign debt also threatens Libya’s ability to make independent decisions depending on who owns the debt. There is evidence to suggest that these bonds are not being openly traded which suggests that the entities buying them — such as the UAE government — have close relations with the LNA. Furthermore, there is evidence that these bonds are securitised by Libya’s oil. This is highly problematic because the eastern central bank which is issuing these bonds has absolutely no control over the country’s oil revenues.

If it is correct these bond-holders would have a major financial incentive to ensure that Haftar gains control over oil revenues. A future government which is not controlled by Haftar could refuse to repay the bonds issued by an illegitimate financial entity. Without control of Libya’s oil revenues, the eastern authorities will have no way to repay the bonds and the interest.

Much of the current focus from Haftar’s assault on Tripoli is on the rising death toll, refugee crisis and insecurity. All important factors. However, the economic implications will be a key driver for Libya’s long term stability.

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