Monrovia – Critics are now equating the government’s apparent inability to stabilize the exchange rate between the US and Liberian dollar to a laissez faire approach, which impact is leading to insistent hike in the prices of major commodities on the local market.
Report by Alpha Daffae Senkpeni, [email protected]
Economists term laissez-faire as a policy which prevents government from interfering in the workings of the market or by allowing all the factors of the market to take their own course.
In the case of Liberia’s economy, which has a floating exchange rate system, the instability of the exchange rate is massively influencing the prices of basic commodities.
It is raising eyebrows and showing a semblance of hardship for ordinary people amid what observers are terming as a ‘wait and see’ approach the new government is employing to fix the broken economy – an approach some fear might worsen the situation.
One economist says every new government brings to the fore a certain level of uncertainty for the business sector, which may prompt major actors of the economy to hold back their investments while keeping an eye on the trend of new economic policies.
Since June, Liberians continued to witness day-by-day depreciation of the Liberia dollar with the current exchange rate as high as LD$152.00 to US$1.00
Money exchangers say importers’ demand for US dollars is an enormous factor, while some economists suggest that a ‘low confidence’ of investors following the inception of the new administration is also constraining government’s ability to expand its hard currency base.
Several retailers have told FrontPage Africa that purchasing goods in Liberian dollar is no longer feasible. One of them said wholesalers only accept a rate of LD$158 to US$1.00 at the moment when purchasing goods in the local currency.
“They carry the rate up high to discourage you from attempting to buy goods in Liberian dollar,” said Adolphus Freeman, a retailer in Paynesville, who added that the demand is now forcing foreign currency buyers to trek across markets looking for US dollar.
Matthew Korva, a money exchanger, added that importers are pouring huge quantity of Liberian dollar in the market, which he said is intensifying the rush.
“Fula and Lebanese business people come and give us money to look for US dollars, so when you’re changing for 150 rate, you will increase it to 152 or 153 so that you can be able to get the quick profit too,” Korva said.
Elijah Dolokeleh, another money exchanger, is confident that once the CBL pours more US dollars in the market the exchange rate would be stabilized.
“There is a need that the Central Bank put huge amount of US Dollars outside (in the market); I think that will help to reduce the rate or else the rate will continue to go up because US Dollars is not enough in Liberia,” he said.
The Central Bank of Liberia is tight-lip about the prevailing situation but continues to point to the drop in global price of the country’s major commodities– iron ore and rubber – as the crux of the problem.
Several attempts to raid what the CBL calls illegal money exchangers off the market have hit rocks, thereby allowing everyone to rumble in the market for the already scarce US dollars in circulation.
Year-on-year comparison has shown that the average exchange rate depreciated by 23.6 percent in April this year when the rate was LD$131/US$1.00, according to the CBL.
The Bank admits that the weakness of the domestic currency continues to occur as a result of the high demand for US dollar to facilitate imports coupled with the weak nature of the economy’s real sector.
But Boakai Jaleiba, a staunch critic of the government, argues that “low confidence of investors and the absence of UNMIL” are two other factors hurting the already struggling economy.
When the United Nations Mission was active in the country, more than an approximation of $3 million was infused into the economy annually through rental fees, procurements and salaries.
Although, balance of payment, terms of trade, size of government’s debt, inflation, and political stability are primary reasons for the soaring exchange rates, Jaleiba adds that speculation of the economy by investors is also creating uncertainties.
“Once they (investors) speculate that the value of our currency will fall, they will choose to accept less of it. They will prefer going for a currency of higher value thus increasing the appetite for the USD,” said Jaleiba, who is also an official of CePAR – a Monrovia based research group.
The by-product of increasing exchange rate is triggering consumers’ price inflation considering that the economy is also heavily import driven.
In the CBL April 2018 report, inflation increased from 9.9 % to 21.4 %, which was due to the depreciation of the Liberian Dollar against United States Dollar.
The CBL claims that its monetary policy for that month was “anchored on price stability through broad exchange rate stability”.
“In pursuit of this objective, the CBL utilized its invention in the FX market and the T-bill as the readily available tools to implement its monetary policy operations,” the CBL stated on its website.
“In the near future, the CBL intends to create a standing deposit and credit eight facilities to complement its limited policy instruments.”
However, Jaleiba – a policy analyst – claims that susceptible fiscal missteps by the government’s economic management team might further deepen the fragility of the economy.
“It is also speculated that sterilized funds from the sale of treasury bonds are being injected in the economy to honor commitments of the government. If that is true, we could be running into trouble and the rate could reach US$1 to LD$200 by December,” he said.
He suggested that “more heads are needed to save the Liberia dollars from further depreciating, because the more it depreciates, the more the burden is passed on to ordinary citizens”.
“There should be a paradigm shift from the overreliance on the traditional income generating sectors to diversification. When you diversify, you expose yourself to new areas of revenue generation,” he adds.
Reporter Willie Tokpah contributed to this story