Monrovia – Any Liberian walking downtown the streets of Monrovia or bustling through the crowded Red-light Market in Paynesville City knows pretty well that the country’s economy is in peril.
Report by Alpha Daffae Senkpeni, [email protected]
“The government is unable to control the rate and prices; this government need people to study the whole situation but no matter what amount of money the government will put in for people to buy the rate will continue to escalate” – Jeff Kennedy, Chairman of AFIA Think Tank
The inflation of the U.S. dollar is the worst in the country’s history, and economists say the prevailing economic trend is the by-product of heavy reliance on the extractive sector.
The World Bank recently reported that Liberia is suffering a 50% decline in revenue collection from iron ore and rubber – the country’s two main exports.
But the Bank has predicted that GDP growth will improve to 2% this 2017, despite the turbulent condition which now put the GDP at 0.01.
Failing Austerity Measures
Meanwhile, savaging the current state of the economy remains a massive challenge for the Ministry of Finance and Development Planning (MFDP), the Central Bank of Liberia and other relevant government agencies.
The government is falling short on making any tangible interventions to ease the pressure on the demand for United Sates dollars by importers.
MFDP Minister Boima Kamara told FrontPageAfrica during an exclusive interview in late December 2016 that the government was finalizing plans to infuse US$5 million into the foreign exchange market.
“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,” the MFDP boss said on December 29.
Kamara continued: “When you do that then it’s going to ease up this pressure so they (importers) 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.”
It’s over 21 days since Liberia’s finance minister made the disclosure at which time the rate was LD$103.00 to US$1.00, and the rate is now skyrocketing – trading at LD$109 to LD$110 to US$1.00.
There are claims from a unit at the MFDP that over US$14.9M was sold to the CBL in December 2016 more than the stipulated amount expected to be sold every month to the CBL which is US$6.5M.
The Extended Credit Facility (ECF) under the International Monetary Fund (IMF) project says one of its mandates is to build foreign exchange reserve by selling US dollars to the CBL in order for the bank to intervene in the foreign exchange market.
From July 1 to December 31, 2016 the ECF said it sold US$35 Million to the CBL as part of its intervention to ease the pressure on the demand for US dollars from businesses.
It is not clear whether Minister Kamara’s plan of infusing US$5 million in the economy was included in the US$14.9M that the ECF sold to the CBL in December. His disclosure of releasing US$5 M came just two days to 2017.
“So if the minister told you that in the coming weeks, assuming that we were in December, the minister meant that in January we will do US$6.5 million,” explains Dell Francis Wreh.
Wreh is the executive director of the Liberian Micro-Economic Policy Analysis Center (LINPAC) – the program that operates the ECF.
He was unable to confirm whether the CBL has debited ECF account for January, but reassured that “Minister Kamara’s promise will still happen.”
Making promises is far from interventions, and being mum amid a shrinking economy is disastrous for the country.
The CBL has often come under pressure from its critics for favoring foreign business owners over Liberians during its auctions of US dollars.
While weighing in on the impact of the sale OF US$ to the CBL, Wreh insists the bank must explain itself about the auctioning of US dollar.
“The only impact I can speak of is that the rate would had climb up if we had not done that,” Wreh said, while calling for the CBL to provide clarity about the conduct of foreign exchange auction to businesses.”
“It is wrong for the CBL to collect the money from us and don’t conduct the auction and the rate keeps going up.”
Liberians Worrying About US$ Rate
Money exchanges are now the main sources of foreign exchange since the CBL is failing make significant interventions.
“Business people are not getting the USD, so everybody is rushing for the small one in the market,” said Mohammed Sesay, a money exchanger downtown Monrovia.
Sesay is confident that once Liberians importers get the adequate amount of US$ from the CBL, exchanging of money on the sidewalk will be control likewise the exchange rate.
Folks gathered at a local think tank on Carey Street were quick to weigh in on the current state of the economy.
“It is unfortunate that Liberians don’t understand the economy,” explains Jeff Kennedy, Chairman of the Association of Intellectual Awareness.
“The government is unable to control the rate and prices; this government need people to study the whole situation but no matter what amount of money the government will put in for people to buy the rate will continue to escalate.”
“The situation in Liberia is a global issue and I understand that the rate is increasing in other countries,” added Thomas Yangbay.
He said measures need to be put in place to deal with the current situation.
“We need to shift the economy in order to be able to tackle these issues.”
Rejecting Liberian Dollars
Many Liberians say the auctioning of US$35 million to businesses since July 2016 has made no impact.
Ordinary Liberians are still experiencing difficulties as the prices of basic commodities continue to increase, and some businesses are refusing to sell in Liberian Dollar.
“Before, we used to buy our goods from Liberia Petroleum and Refining Company, but since the rate went up, we can no longer buy from there because they don’t receive Liberian Dollars, only United States Dollars,” complains James T. Ballayan, a petroleum dealer in Paynesville.
Like the LPRC, the Liberian Electricity Corporation (LEC) is also rejecting LD as many subscribers complain that the action puts more pressure on the demand for US dollars.
“Why should people reject Liberian dollar?” asked Jerry Fahn of Du Port Road, Paynesville.”
“Once the rate is going up and we can’t get US businesses own by the government must accept our money. They are the ones making the demand to go high.”
Even schools are demanding only US dollars as tuition fees, and parents are bewailing the constraints they are enduring to get US$D in order to pay their kids fees.
“The school my son attends doesn’t have a Liberian Dollar account,” complains a parent who preferred anonymity.
“So I am finding it difficult to get the United States Dollars. As the rate continues to climb sky high, I fear that my son will be put out of school if I don’t pay his fees on time.”
Conflicting Rate Pains Employees
Civil servants and other employees are now being paid in LD at a rate far lower than the rate on the streets.
Many employees consider this a reduction of their salary as the CBL and many commercial banks rate remains LD$100.00 to US$1.00 while the purchasing rate is at most LD$110 to a US dollar.
“The whole thing is confusing us,” an angry Joshua Gayflor said.
“How will people be changing for 109 in the market than the government says its own rate is100? When you get pay you in LD and go buy everything is expensive because of the rate,” he said.
But Minister Kamara had argued that the situation is an ‘inflationary impact’ he termed as ‘implicit tax’ – a situation that reduces purchasing power when inflation rises.
“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,” Minister Kamara said.
And low income earners struggle to meet socioeconomic needs due to the hike in the prices of essential commodities.
However, government continues to struggle to make changes that will relieve the pressure Liberians who are paid in Liberian dollar.
The prediction is becoming clear that the rate may continue to increase in the absence of an alternative for generating revenue.
The call for the diversification of the country’s economy continues to top national discussions and even top government economists like Minister Kamara has also admitted.
Opposition Politicians Proffer Alternatives
The voices of many ordinary Liberians are also being echoed by economists and politicians who have called for a new approach to revive the economy.
Recently, Simon Freeman, a strong critic of the government warned that the current situation threatens Liberia’s stability.
Freeman asserted that the country has a priority problem instead of a revenue problem.
“Reducing our trade deficit is at the heart of reducing our exchange rate, ensuring the existence of local factories; producing local goods would enable retention of the millions remitted to Liberia,” said political leader of Movement for Progressive Change (MPC).
Another opposition politician and longtime serving expert of corporate America, Alexander Cummings argues that the country needs another source of revenue to meet its economic demands.
“What we will do that will be different is that we will make sure economic policies are consistent with what investors want,” Cummings, who is the political leader of the Alternative National Congress told international wire, CNBC Africa during a televised interview.