Libya’s public finances have long been characterised by institutional division with authorities in the east and west of the country pursuing separate budgets and development agendas. This fragmentation had previously fuelled inflation and widened hard currency deficits. In November 2025 the Libyan House of Representatives and the Tripoli-based High State Council signed the agreement on the Unified Development Programme, a framework intended to consolidate spending channels and unify development priorities across the country. The endorsement of the accord by the Central Bank of Libya (CBL) is significant: it signals recognition that fiscal coordination is indispensable for stabilising the macroeconomy and creating the conditions for more effective monetary management.
Macroeconomic stability
At the heart of the agreement lies the ambition to integrate spending channels across Libya’s divided institutions. For years, separate fiscal practices in the eastern and western regions have led to excessive expenditures, increased hard currency deficits, inflationary pressures and a higher cost of living. By consolidating development spending within a unified framework, the accord aims to reduce duplication, limit off-budget commitments and provide clearer guidelines for resource allocation.
The CBL has emphasised that transparency and governance are central to the agreement. Improved public financial management is critical for anchoring expectations and reducing fiscal dominance over monetary policy. The framework could help stabilise the macroeconomy by directing resources towards productive investment in infrastructure, education and health. Investment such as these expands supply-side capacity, easing inflationary bottlenecks and supporting long-term growth.
Monetary policy
When government spending is fragmented, liquidity injections into the economy are unpredictable, complicating the CBL’s management of reserve money and foreign exchange auctions. A unified development programme improves the predictability of fiscal flows, enabling the CBL to calibrate monetary operations with greater precision.
Equally important is expectation management. By framing the agreement as a proactive step to avert larger crises, this can shape inflation expectations and reduce volatility in the parallel foreign exchange market, provided it is backed by timely data and enforcement of budgetary limits. Institutional signalling – affirming readiness to implement tasks in line with legislation – reinforces credibility, lowers risk premium and strengthens the pass-through of policy to credit conditions.
Implementation challenges
While unifying spending channels is necessary but insufficient; the stabilising impact depends on procurement integrity, timely disbursement and rigorous monitoring. Without these, arrears and cost overruns could re-emerge, fuelling inflation and undermining foreign exchange stability. International support, such as the endorsement from the US Embassy may bolster confidence, but investors will look for additional concrete reforms: published budgets, rolling audits and alignment with recognised public financial management standards.
Broader implications
The agreement has the potential to serve as a quasi-fiscal rule, limiting ad hoc spending and supporting the CBL’s capacity to manage liquidity and foreign exchange. Through sequencing capital expenditure and coordinating disbursements, the CBL can better align currency operations and payment system oversight with fiscal flows, reducing volatility in money markets. This complements ongoing efforts to expand electronic payments and reduce reliance on cash, further strengthening monetary transmission.
The accord is a positive macroeconomic signal, but its stabilising potential hinges on publication of operational details, enforceable oversight and a pipeline of high-quality projects that deliver supply-side relief rather than demand surges. Assuming these conditions are met, Libya could take a meaningful step towards monetary stabilisation, improved governance and sustainable development.
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