Monrovia – Fixing Liberia’s ‘messy’ economy is a headache the government continues to carry as the citizenry feel the pinch.
“The government cannot protect the exchange rate because we do not have the ability to defend the exchange rate against the dollar – the economic structure is not strong, you are producing for exports.
The government is not in the position to meet all of the total demands for foreign exchange, but if you do it in a way that meets significant portion of what the market needs, it’s going to work – and it has always worked” – Minister Boima Kamara, Ministry of Finance and Development Planning
The government blames the situation on the slump in the prices of the country’s main exports – iron ore and rubber - saying their prices have hit rock bottom on the world market.
Liberians are echoing their concerns, while critics are calling for government to embark on appropriate fiscal measures to salvage the struggling economy. But the government says, though it is working to mitigate the situation, Liberia is not the only country in the region affected by this economic recession.
Dual Currency Headache
Minister of Finance and Development Planning (MFDP), Boima Kamara, during an exclusive interview with FrontPage Africa Wednesday, admitted that in a dual currency situation like Liberia’s, the stronger currency dominates.
Interestingly, Kamara said Liberia’s financial law provides that all prices on the market must be in Liberian dollar although the same law calls for co-circulation of the two currencies.
“There’s where we have to address the structural side to the state of our laws; they need to be harmonized,” Minister Kamara suggested.
“Because on one end, you say prices of all transactions should be denominated in the local currency – Liberian dollar - but at the same time in the same act, it says they co-circulate as legal tender, so anything that is legal tender must be acceptable.”
The debate over Liberia’s dual currency has continued for years, but the legislature and executive have failed to cultivate a single solution. One expert, Samuel P. Jackson says, “The one overarching factor limiting the accelerated implementation of a single currency regime of Liberian dollars is the lack of productivity in the country’s economy”.
Fixing ‘Messy’ Economy
Ahead of fostering plans to promote value addition of crude resources and food production, which may enhance economic growth, the government says it is taking swift actions to make quick intervention to reduce inflation.
And FrontPageAfrica has been hinted by the MFDP boss that the government will, in the coming weeks, infuse US$5 Million into the economy to help ease the demand for US dollars which is consequently seeing the exchange rate at LRD$105 to US$1.
Minister Kamara described the increase in the exchange rate as a seasonal dimension, adding that pressure always build on the exchange rate after businesses have sold out their goods and go out searching for US dollars, causing the pressure to mount on the exchange rate.
He admits that if the economy doesn’t have a substitute or alternative way that supplies to importers to a significant extent, the rate goes high.
“The government cannot protect the exchange rate because we do not have the ability to defend the exchange rate against the dollar – the economic structure is not strong, you are not producing for exports”. emphatically, MFDP boss said,
Continued Kamara: The government is not in the position to meet all of the total demands for foreign exchange, but if you do it in a way that meets significant portion of what the market needs, it’s going to work – and it has always worked.”
He’s confident that CBL’s minimum intervention will significantly help minimize fluctuation, assuring that the rate will go down.
The austerity measure was decided at a recent meeting involving MFDP, Ministry of Commerce, Central Bank of Liberia and the business community held at the Chamber of Commerce in Monrovia.
Minister Kamara said the meeting was part of government’s initiative to solve the prevailing economic situation by finding foreign exchange options for businesses or importers.
“When you do that then it’s going to ease up this pressure so they will not have to go to the commercial bank or even going to foreign exchange dealers looking for foreign exchange. If the central Bank is in the position to supply most of the US dollars that they need,” he said.
Continue Minister Kamara: “So by next week or probably early – maybe going to the second week, there will be some intervention in the market for foreign exchange to the large businesses including small businesses.”
Old and New Bank Notes’ Confusion
The printing of additional bank notes by CBL has sparked mix reactions especially as the Liberian dollar continues to devalue causing hike in the prices of essential commodities.
When the CBL announced the circulation of the new bank notes, it said the new banknotes were being distributed to commercial banks and other financial institutions throughout the country to serve customers who may wish to exchange mutilated notes for the new Liberian dollar banknotes.
It has been observed that even mutilated notes are being served at commercial banks across the country and continues to circulate on the market as well. But Liberia’s finance minister claims that the co-circulation of new and old banknotes will continue until certain period.
“They are going to circulate until a given period of time. All other countries that introduce new currencies or new notes, it takes time, so meaning you give a period in terms of the implementation that lead to a road map that says within six months we will be in the position to take out all of the old notes,” Kamara said.
He said the circulation of the old notes will decline gradually as more large businesses continue to deposit old banknotes up to the second fiscal quarter of 2017, saying at that the “likelihood of seeing old notes in circulation will reduce highly”.
Civil Servants Feel the Pinch
The devaluation of the Liberian dollar has gravely affected civil servants’ salaries since they are pay half of their salary in Liberian dollars.
But Minister Kamara said the situation is an ‘inflationary impact’ which he termed as an ‘implicit tax’ that reduces purchasing power when inflation rises.
Such inflation makes low income earners feel the burn due to the hike in the prices of essential commodities.
However, it seems government is unable to make changes that will relieve the pressure on civil servants to match the existing purchasing power parity of low income earners.
“In difficult time, government is not in the position to increase civil servant wage because it comes from additional expenditure pressure when you have slowdown in revenue,” he said.
Diversifying ‘Dependent’ Economy
The dependency on the extractive sector clearly has massive impact on the economy, prompting Minister Kamara to even admit that investing in the agriculture sector can solve some of the economic challenges.
“Improving the economic corridor is key to this economic diversification,” said Minister Kamara.
And diversifying the economy means investing in the local production of rice, coco, palm oil, coffee and even adding value to rubber, he added. He said a new dispensation in the economic structure is needed to reverse the existing economic structure.
“Our rice – locally produce rice; our farmers who are involve in the production of rice – you support them to get a mail, to get a de-stoning plant, to get the packaging for bagging and branding.
Those are the value addition in which case before we didn’t take of this much,” the finance Minister said.
Formulating emergency fiscal plans as austerity measures may take time to settle and yield the necessary results.
Many economists or critics of the regime have also lambasted the government for turning a blind eye on key priorities that might serve as alternative revenue generating areas in order to strengthen the economy.
Minister Kamara’s admittance that investing in cash crops would have provided additional balance to the economy as revenue from the extractive resources falls, may obviously open a debate about the Sirleaf led government missteps in economic policies.
“The talks of such has been on the table but practicalizing them in terms of saying ‘let’s do it’, so the time has come that we should began to do it,” Minister Kamara said, adding that the government has instituted policies to support local farmers by purchasing locally produced rice.
Agricultural has the potential of strengthening a locally produced food products and can also provide employment for a significant portion of the population.
Economists, including Minister Kamara are confident that the sector has massive potential but needs more attention.
“The extractive industry – iron ore – is the highest contributor to growth but the lowest employer in terms of number…, with all the investment going in is just because you are just extracting and you are exporting and the capital does not reside with us, it goes where the owners are,” he said.
Reducing Recurrent Expenditure
Responding to critics’ suggestions about reducing recurrent expenditure in order to divert resources to other priorities and avoid budget shortfalls, the Liberia Finance Minister insists government has embarked on other measures which include reducing travels and the slicing of allowances, gasoline, scratch cards, and the reduction of 5% on every ministry and agency budget.
He justified that it was important for government to maximize other revenue generating areas in order to raise the needed revenue to implement national priorities captured in the budget especially as the situation remains critical.
“So the areas of concentration did not impact on food; it was rise on the ones that we refer to as luxuries which include phone calls,” he said, while arguing that Liberia has the lowest tariff on phone calls in the sub region.