Liberia: Depreciating Liberian Dollar Likely to Cause US$41 Million Budget Shortfall

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Monrovia – The nuisance of budget shortfalls never seems to go away from Liberia, putting the enormous competing priorities of the government at risk of being achievable.


Report by Alpha Daffae Senkpeni, a [email protected]


The government of former President Ellen Johnson Sirleaf suffered several budget shortfalls in her second term, which made the administration inefficient with its fiscal policy and development achievements.

And for the new government of President George Weah, its first fiscal task of managing the 2018/2019 budget amid turbulent economic conditions in the country would be averting a possible shock – a looming budget shortfall.

The devaluation of the Liberia dollar remains a massive concern for many Liberians but the administration appears to be taciturn, sparking critical pessimism from oppositions that a solution is far fetch and that the situation might worsen in the coming months.

The passage of the US$570 million budget with an inclusive domestic revenue envelope of US$506 million has now opened a new debate about the generating the total amount.

Some criticized the new wage bill which has been termed as an “all time high”, while others argued that the budget doesn’t commensurate with the pro-poor agenda because most of the line items are operational costs.

While the impact of the budget is in its emergent period, fresh concerns about possible shortfalls have surfaced.

A research group revealed on Wednesday that there might be a US$41 million shortfall considering the “whooping exchange rate” which would adversely affect the domestic revenue envelop.

The Center for Policy Action and Research (CePAR) projects that at least 40 percent of the revenue expected to be raised domestically will be paid in Liberian Dollars and because the exchange rate is volatile, it would impact exchange to United States dollars.

“While the forecast around the percent of domestic revenue that will be generated via Liberian Dollars is 32%, it is only rational to suggest that more taxpayers will prefer paying their taxes in LRD because of the favorable official rate that will be provided by the Central Bank of Liberia,” CePAR said in a statement Wednesday.

The research group’s analysis shows that the impact of the exchange rate on the budget, using 1USD to 140LRD as the rate at which the computation was done, and comparing it with the soaring official numbers spanning over the last 6 months, this means there might be further depreciation of the Liberian dollar against the US dollar.

“The official average trend for the next 12 months will take this shape: 153.544- July 2018, 159.420- August 2018, 162.5- September 2018, 166.9October 2018, 168.45-November 2018, 172.90- December 2018, 176.55- January 2019, 181.30-February 2019, 185.75-March 2019, 189.30-April 2019, 193.54-May 2019, and 197.40-June 2019,” CePAr said.

The research group, which said it used a simple self-explanatory trend to derive the result of its analysis, adds that “if 175.6LRD is used as the average exchange rate for the current fiscal period, the exchange rate loss alone will be a whopping US$ 41 million.”

And this will be a hard hit for the 2018/2019 budget, creating a massive shortfall.

“A computation of the average rate over the current fiscal period results to 1USD to 175.66LRD. Again, this is based on the current trends. Things could improve or deteriorate but as it is, all directions are headed to a spectacular depreciation of the Liberian dollars,” the group said.

The below was the calculation used by CePAR to show possible budget shortfalls due to the depreciating Liberian dollar against the United States dollar:

140* 202,000,000.00 (rate used for computation times projected revenue in LRD) = $28,280,000,000.00

175.66*202,000,000.00 (average exchange rate over the current fiscal period times projected revenue in Liberia Dollars)=  $35,583,320.00 The difference between the stipulated figures is  $7,203,320,000.00 LRD. When the average rate over of 175.66 is used to account for the loss in Liberian Dollars, you will have  $7,203,320,000.00 LRD/175.66 =  $41,007,172.95.

However, if the official rate remains at 1USD to 151LRD, the exchange rate loss will be $14,715,231.79 using the same linear trend analysis. 

Amongst several recommendations, CePAR called on the government to ration the quantity of foreign currency for the acquisition of imports the country needs most.

In an import-based economy like ours, we have to fetch on substitute goods thus freeing up the pressure on importers trying to import everything. This will automatically result to increase in sales of locally produced items, the report said.

Considering the already dwindling Liberian dollar which is leading to skyrocketing prices of basic commodities on the local market, prediction like CePAR’s is worrisome for the almost six-month-old government that appears to be enjoying a certain level of populism.

The resignation of Milton Weeks as Governor of the Central Bank of Liberia and the tenure expiration of Elfreida Stelwart Tamba have renewed debates about the probable trend the CDC-led government would tread in order to salvage the state of the economy.

There have been speculations about Weeks’ resignation with sources within the Executive Mansion telling FPA that the former governor had been adamant about signing documentations sealing the government’s consolidated account as sovereign guarantee to secure the US$536 million loan from ETON Private Finance Limited.

On the other hand, some members of the ruling administration have been insinuating that the former LRA and CBL bosses are not devotees of the pro-poor agenda, claiming that they would have undermined the fiscal objective of the government.

Weeks, according to sources, was also blamed by the Executive for doing little to curb the soaring foreign exchange rate between the U.S and Liberian dollars which might a more devastating effect on revenue collection in the government’s first fiscal year.

Meanwhile, CePAR is calling on the Ministry of Finance and Development Planning to urgently rework the budget to reflect the volatility of the exchange rate to avoid the potential budget shortfall.

It is advisable that the anticipated loss be risked as contingent revenue and should only be allotted when there’s an exchange rate gain, the research group said.

The group also suggests that the government adopts several austerity measures including cutting costs on basic operations and avoid increasing the size of the payroll.

“CePAR believes that while there is no quick fix to help with the appreciation of the Liberian Dollars, there could be some structural adjustments ensuring the big players in the economy turn a sizable amount of funds received from sales of goods and services to banks as deposits as opposed to keeping them in vaults at home”.

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