Libyan General Khalifa Haftar has racked up some $25 billion of debt funding his self-styled army, through a mix of unofficial bonds, Russia-printed cash and deposits from eastern banks, according to Reuters.
Haftar has built up his Libyan National Army (LNA) with the help of the UAE and Egypt supplying heavy gear such helicopters. It also enjoys the support of Saudi Arabia, Russia and France, despite the UN recognising the Tripoli-based Government of National Accord (GNA) as the legitimate authority in the country.
The controversial Libyan general has also built a parallel banking system, headquartered in the eastern capital Benghazi. However, diplomats and banking sources say that those sources of support might be closing, as the Tripoli-based central bank, which controls the country’s energy revenues, has taken steps to curtail the operations of banks in the east.
Those banks have in recent months struggled to meet minimum deposit requirements, which could give the Tripoli central bank allied to Presidential Council head Fayez Al-Sarraj an excuse to shut off access to hard currency.
“There is a looming banking crisis that could undermine eastern authorities’ ability to fund themselves in the near future,” said Claudia Gazzini, senior Libya analyst at International Crisis Group. “The crisis was already in the making before the war broke out.”
At least 264 people have been killed, and more than 1,288 have been injured in renewed violence which has rocked Libya this month after General Haftar launched the “Flood of Dignity” campaign on regions in the west of the country, including the capital Tripoli. The move was widely condemned by the international community, who warned that it could plunge the country into active civil war once again.
Tens of thousands have been displaced as Haftar’s forces advanced on suburbs around the city centre, forcing residents to flee. But the UN-backed Libyan National Authority has pushed back against Haftar’s troops in the south of Tripoli this week, with shops reopening after days of fighting.
There is no public data on the costs of the offensive, but General Haftar has sent more than 1,000 troops west plus support staff including drivers and medics, military sources and residents said. He has used merchants to import vehicles and other gear, using hard currency obtained from the Tripoli central bank and paid out by eastern commercial banks issuing letters of credit, transaction methods now under threat.
However the eastern faction’s finances face another potential vulnerability.
In November, the House of Representatives allied to Haftar approved a law to set up a military investment authority which gives the LNA control — like in Egypt — of parts of the economy including civilian activities such as scrap metal.
The investment vehicle’s companies are exempted from taxes and import duties, as part of a welfare state envisaged by Haftar, but they need banks to deal with partners abroad and expand their businesses, in order to continue their service provision.
Functioning banks are also needed for Haftar’s parallel government to pay salaries and serve an LNA support network, analysts say. The central bank in Tripoli covers some public salaries in eastern Libya but not LNA soldiers hired after 2014 when the country split into western and eastern administrations.
However, diplomats do not expect Tripoli central bank governor Sadiq Al-Kabir to shut eastern banks completely as this would pose risks for western lenders. The same banks operate in the west and east with money flows hard to differentiate.
But they fear the longer the conflict lasts, the harder it will be to unify the central banks and repay debt.