Economy officials in the Libyan capital, Tripoli, have agreed to a three-track reform process including a proposal to impose fees on foreign currency transactions, the central bank said on Saturday.

The central bank gave no details of how the fees would work, but they would be aimed at tackling the wide gap between the official exchange rate of 1.4 dinars to the dollar, and the parallel rate of around 7 dinars.

The gap is seen as a major factor in distorting Libya’s oil-dependent economy, contributing to a liquidity crisis and causing corruption as those with access to dollars at the official rate make huge profits through import scams.

Effect of Libya’s political crisis on economy

Libya was once one of the wealthiest countries in the region, but its economy has been crippled by conflict and political division over the past five years.

The central bank said the framework announced on Saturday was agreed with Fathi al-Majbari, who heads the economic file for the internationally recognised government in Tripoli.

The other tracks were described as addressing subsidies and "creating a mechanism of compensation to mitigate the repercussions and effects of economic reform.”

Tunis deal to reduce fuel subsidies

The statement came after an internationally mediated meeting in Tunis this week at which the central bank governor, Sadiq al-Kabir, said an agreement had been reached to take action on the exchange rate and reducing fuel subsidies by the end of July.

Officials with knowledge of the Tunis meeting said the compensation mechanism would be a cash transfer to offset the impact of reducing Libya’s fuel subsidies, which are among the most generous in the world and have led to widespread fuel smuggling.

It is unclear to what extent officials in Tripoli can implement effective economic reform without the backing of eastern factions that support a parallel government and central bank based in Libya’s east.

Previous pledges to act on the exchange rate and subsidies have come to little.

Agencies