Even after 12 years, discourse on Libya remains fixated on the lethal and the lucrative — sidelining the role that the North African country’s finance and banking sector plays in perpetuating, even exacerbating, dysfunction mostly stemming from its discordant politics. Entrenched political elites share a disinterest and, at times, outright hostility, toward reforming the entire sector as a state-rebuilding priority since the root cause of almost all lack of progress — political, economic, security, or otherwise — in Libya remains financial opacity and corruption. Thus, even entities such as the country’s own central bank end up incentivizing a woeful status quo instead of fulfilling its mandate to ensure Libyans retain access to public services and uninterrupted flow of goods to preserve what is left of Libya’s economic integrity. Even prior to the post-2011 political instability, Libya’s financial sector was not sufficiently developed nor fully exorcised from the crippling legacy of decades of economic centralization. The enduring dominance of oil revenues underwrote a highly centralized economy that sourced liquidity from state-owned banks (where the central bank was the principal shareholder), to finance public projects with depositor funds. There was little incentive to modernize banking, bolster the financial sector and adopt better risk-management strategies. Unsurprisingly, the pre-2011 attempt to decentralize the economy, following sanctions relief and declining oil prices, was doomed from the start given severely limited non-bank financing, private property and no capital markets. On one hand, these attempts at opening up the economy did open the floodgates for alternative financing such as the launching of a stock market and the introduction of private banking. Yet, by the time Libyans took to the streets in a preamble to the fall of Muammar Qaddafi, the country’s finance sector remained weak, disorganized and atrophied by the inherent structural weaknesses of decades of centralization. As a result, any window-dressing reforms were never going to upend a finance sector heavily influenced by poorly run state banks with no competition, in addition to being well-insulated by the central bank. The Libyan central bank dominates national finance as a majority shareholder in state-owned banks, despite also being the regulator of the banking sector, presenting obvious conflict-of-interest issues. These range from granting generous credit terms benefitting the well-connected to insulating public banks from the consequences of reckless financial decisions via potential forbearance. In a nutshell, being both a principal banker to the state and to the Libyan public is reminiscent of a Qaddafi-era centralization that continues to resist reforms, hiding behind a political crisis to excuse weakening levels of financial inclusion and intermediation. However, resisting reforms to the Qaddafi-era rentierism, Libya’s central bank continues to fund the conflict-economy as well as underwrite a generous subsidy system that also invites corruption, abuse and other types of malfeasance. Nonetheless, it is an extremely vital situation in a fragile country on the verge of slipping back into episodes of sporadic violence and mass unrest as both economic and political grievances mount. The specter of renewed violence in this climate of deepening fragmentation is especially worrisome since it weighs heavily on Libya’s financial and economic development, potentially creating new challenges or worsening existing ones. Libya’s financial sector, as troubled as it is, remains the sole mechanism by which the state keeps a disordered conflict-economy functioning — even to the point of avoiding shutting down unprofitable operations lest they increase the country’s many jobless. Libya will — for now — remain crippled by a finance sector inclined to subvert calls for its reform. Hafed Al-Ghwell In a population of nearly 7 million with a labor force of just under 3 million, nearly one in five Libyans — half of its youth and a quarter of its women — are out of work. Despite this sobering statistic, Libya’s overall economy has surprisingly resisted total collapse on the back of a strong petrochemical industry and a services sector dominated by financial services that contribute roughly 77 percent and 21 percent to GDP, respectively. Yet, Libyan firms are still struggling to access financing for rebuilding and resuming their operations, while an elevated risk environment makes an underdeveloped financial sector less likely to extend lines of credit. It is even worse for the 667,000 refugees and migrants who are typically excluded from the formal sector. Limited access to financial services means they have trouble formally transacting in the economy, exposing them to significant risks, impacting their ability to plan adequately and even invest their earnings to safeguard their futures. Surprisingly, two thirds of Libyans are “banked” — i.e., they hold an account at a financial institution, compared to under 50 percent in the wider Arab region, but most accounts are merely used to receive wages with very little to nothing left over for financial intermediation. Meanwhile, the dual roles the central bank plays as both regulator and banker makes it difficult to urge banks it owns to offer cheap financing to maintain adequate liquidity levels, while also ensuring they remain solvent. The end result is a very conservative, risk-averse financial environment that harms rather than helps Libya’s private sector — hamstrung by disrupted operations, income losses, collapsed supply chains and a very volatile Libyan dinar. Elsewhere, persistent instability and the lack of unified monetary policy also bottlenecks any initiatives of the central bank to make funding available for critical development projects, underscoring how political struggles continue to undermine Libya’s post-conflict stabilization and reconstruction. Strangely enough, the international community has yet to move away from mere statements expressing “concern” and doing nothing else to deal with the Achilles’ heel of Libya’s transition, which remains an inscrutable, unaccountable and semi-sovereign central bank. It, much like the state oil parastatal, falls low on a totem crowded by rival governments, enterprising external actors, a rogue legislature, militia groups and a seemingly disoriented UN mission, no one can deny the centrality of Libya’s financial sector in maintaining control by facilitating the flow of money from oil revenues into the hands of dubious beneficiaries. The central bank’s expansive footprint within the financial sector as well as the wider economy also enables it to turn its counterparties into willing advocates and defenders of the status quo in exchange for generous compensation or avoiding scrutiny. The cursory attention Libya’s financial sector receives from actors that claim to have a stake in resolving its now 12-year-long quandary is perhaps due to the fact it is the only portal through which foreign entities can interact with and conduct business in Libya. Foreign actors such as Turkiye, Russia, the US and the EU have vested interests in how the Libyan finance sector operates, and that it continues to do so despite the political impasse, which destroys any impetus to promote and safeguard its integrity. Even with warring factions, parallel government(s) infiltrated by hybrid actors or an oil crescent crisscrossed by fortified trenches manned by armed foreign fighters and mercenaries — the money must still flow. In addition, companies from overseas owed money by various Libyan entities are unlikely to back any push for transparency, accountability and crucial reforms to dislodge the sector from its antiquated role as it risks the recovery of those debts or any back payments. Libya will, for now, remain crippled by a finance sector more inclined to subvert calls for its reform, aided by a disinterested coalition of major actors that are loath to devise something better — of course, in parallel with ongoing peace-building, security and reunification processes. • Hafed Al-Ghwell is a senior fellow and executive director of the Ibn Khaldun Strategic Initiative at the Foreign Policy Institute of the Johns Hopkins University School of Advanced International Studies in Washington, DC, and the former adviser to the dean of the board of executive directors of the World Bank Group. Twitter: @HafedAlGhwell