Liberia Scores High in The Review of Macroeconomic Performance of The WAMZ Countries Relative to The Ecowas Convergence Criteria

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Liberia made significant improvement in the performance against the 6 criteria set for convergence to the Ecowas Single Currency Programme, compare to 5 other countries of the West African Monetary Zone in the Ecowas region, the WAMZ. The 6 countries of the zone include Nigeria, Ghana, Gambia, Guinea, Sierra Leone and Liberia.

Liberia’s performance on the ECOWAS Primary convergence scale was improved to three (3) in 2021, compared to two (2) and one (1) achieved during 2020 and 2019 respectively.

The country satisfied the criterion on fiscal deficit, central bank financing, and gross external reserves in months of import cover, and slightly miss out the benchmark on average inflation. Provisional projections indicate that by end June 2022 review, the country’s performance on the primary convergence criteria would be sustained at three.

In compliance with ECOWAS Criteria on the convergence status, the continued implementation of macroeconomic policy thrust by the government of Liberia enabled Liberia to attain four of the targets criteria in 2021 despite the severe impact of the COVID-19 on the Liberian economy. Liberia achieved four (4) out of six (6) criteria, parallel to the corresponding period of 2020.

On the secondary convergence scale the country’s performance was changed, Liberia met one criterion and slipped on one. Liberia met the criterion on public debt to GDP Ratio and improved on the criterion on exchange rate variation, missing it narrowly as a result of brief fluctuation in December of 2021. Sierra Leone and Gambia met two primary criteria each, while Ghana and Nigeria met 2 primary criteria and 1 secondary criterion each.

PRIMARY CRITERIA:

Annual Average inflation (≤5%): During the review period, Liberia missed the require benchmark on the single digit inflation criterion. Although Average inflation decreased to 7.9 percent as at end-December 2021, down from 17.4 percent as at end-December 2020. The moderation in inflation (both average and end-period) was largely explained by the CBL’s monetary policy stance coupled with the appreciation of the domestic currency, and constrained demand.

Fiscal Deficit (including grants) %GDP (≤3%): Liberia satisfied the prescribed fiscal deficit criterion at negative 1.8 percent of GDP, in the review period, matched against negative 3.4 percent of GDP recorded at end-December 2020. The achievement of this benchmark was due mainly to the implementation of fiscal consolidation measures.

Central Bank financing of the Fiscal deficit (≤10% of previous tax revenue): Liberia satisfied the prescribed Central Bank Financing of the fiscal deficit criterion.

The country met the targeted benchmarked by 0.0 percent in the first half of 2021, parallel to 0.0 percent recorded in the corresponding period of 2020, largely due to the regulation under the requirement of the IMF Programme which does not allow government to borrow from the CBL to finance its fiscal deficit.

Gross external reserves (≥3 months of import cover): The country satisfied the targeted benchmark at 4.5 months of imports covers during the review period, compared to 2.5 months of imports attained in 2020, mainly driven by the SDR allocation made to Liberia by the IMF during the year.

SECONDARY CRITERIA:

The ratio to the stock of public debt to GDP (≥70): The targeted benchmark of this criterion score in the period under examination was 49.7 percent of GDP, compared to 52.6 percent of GDP recorded in 2020, below the prescribed ceiling of 70.0 percent, indicating that the country satisfied the criterion, underpinned by sustainable debt strategy.

Nominal Average exchange rate stability (± 10%): the country missed this criterion with a score of 12.6 percent appreciation of the Liberian dollar against the WAUA, compared a score of negative 4.1 percent depreciation registered in 2020. The appreciation of the Liberian dollar during the review year was occasioned largely by the contractionary monetary policy stance of the CBL that was enhanced by an increased net inflow of remittances.

On trade integration, Liberia has signed AfCFTA and is making effort to ratify the Agreement as soon as possible to join the rest of the Member States of the WAMZ in making the necessary and meaningful reforms to enable the country harness the opportunities offered by AfCFTA.

The growth outlook of Liberia is promising. Output growth is expected to soften to 3.7 percent in 2022, largely due to heightened global uncertainties, the prolongation of the Russia-Ukraine war, and commodity price shocks, which are pushing inflation into double-digits.

In 2022, despite the downside risks associated with the COVID-19, the expected hike in interest rates and the Russia’s evasion of Ukraine, with implications on global growth and inflation, Liberia is expected to attain five (5) of the six (6) convergence criteria in 2022. The Country is expected to satisfy three (3) of the primary convergence criteria and the two (2) of the secondary criteria and may miss the inflation benchmark criterion of ≤5%.

Economic activities began to pick up in the review period after a slowdown in the outbreak of the corona virus disease. The macroeconomic policy thrust of the Government in 2021 remained focused on interventions in priority sectors, including educational and healthcare programs, agriculture, energy, and infrastructural projects that are consistent with the existing national policy framework. The Government has developed a new national strategic plan for the next one years, the “Liberia Economic Recovery Plan” (LERP).

This new plan seeks to address gaps created in the economy as a result of COVID-19 pandemic and other shocks in the last few years prior to the pandemic to support the “Pro-Poor Agenda for Prosperity and Development” (PAPD). The Plan also advances options aimed at stimulating the economy in a way that will complement the country’s development agenda through economic diversification, strengthening resilience by reducing vulnerability, and consolidating public finance for efficient service delivery.

Liberia experienced a strong economic recovery in 2021, real GDP growth grew by 5.0, from a revised of 3.6 percent which was early projected at the beginning of 2021, this is higher than a contraction of 3.0 percent in 2020, and 2.5 percent attained in 2019 respectively, on account of improvements in all sectors, especially mining which is experiencing an increased gold production.

Average inflation in 2021 declined significantly to 7.9 percent, compared to 17.4 percent recorded in 2020, and 26.9 percent in 2019 respectively. Similarly, at end-December 2021, inflation decreased to 5.5 percent, compared to 13.1 percent as at end-December 2020, and 20.3 percent at end-December 2019 respectively, largely occasioned by decline in all major groups in the CPI basket.

During the review period in 2021, Government fiscal operations resulted in surplus for both overall and primary balances. From 2020 to 2021, total government revenue and grants have significantly improved incrementally over these periods, raising by 47.8 percent to (20.2 percent of GDP) in 2021 and 31.2 percent to (20.5 percent GDP) in 2020 respectively, compared to a contraction of 8 percent to (15.4 percent of GDP) recorded in 2019. However, revenue and grants projections for 2022, improved significantly by 70.7 percent to (21.4 percent of GDP) compared to a contraction of 8 percent to (15.4 percent GDP) recorded in 2019, mainly due to rise in tax revenue on account of improvement in domestic revenue mobilization.

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