Monrovia – Even before the end of Ellen Johnson Sirleaf’s last days as president, every economist – home and abroad – had predicted that Liberia’s economy would struggle to recover from the shocks.
Report by Alpha Daffae Senkpeni / [email protected]
It was the ramification of Ebola that had struck and left an indelible impact, while the prices of the country’s major exports were recovering at snail speed.
It became clear that Sirleaf was struggling to diversify the economy, and the dependency on the extractive sector was pretty unsalvageable.
More Growth Uncertainties
Now, it appears that the problem keeps worsening under President George Weah despite faint optimisms about the country’s GDP growth rate.
The projected growth has been reduced from 3.2 to 3.0 amid a serious inflation “underpinned” by “unfavorable terms of trade for primary commodities” and the World Bank has also warned of looming economic challenges.
The over dependence on the extractives is still far from over as actions by the new administration to direct massive capital to the agriculture sector – a conduit of economic diversification – remains farfetched.
Even this year’s expected growth of 3.0 percent gingerly rests on the mining sector, as market speculations loom suggest “the prices of gold, iron ore, and diamond, [are] anchored on improvements in other sectors of the economy”.
Inflation Shows Bad Signs
A Report to the Liberian Senate on the state of the country’s economy by the Technical Economic Management Team (TEMT), chair by Finance and Development Planning Minster Samuel Tweah, shows bad signs.
“Macroeconomic conditions deteriorated in the first three quarters of 2018, with heightened pressure on the exchange rate and inflation,” the report says, adding that “weak domestic demand” is because of the “debilitating state and a major challenge to increased domestic economic activities”.
This means purchasing power of Liberians is dwindling – probably worse than what the report captured. The depreciation of the Liberian dollar is leading to price hike compounded by a recent increased petroleum price.
Real GDP of major sectors are showing discouraging numbers with little exception to agriculture and fishery at 3.0% growth as compare to 2.5% in 2017. Forestry shows a little improvement, from -8.0% in 2017 to – 6.3%, while there’s slight improvement in the GDP of the mining sector this year, which is at 29.3% compare to last year’s 28.8%.
Meanwhile, the service sector has dropped from 1.0% in 2017 to – 0.55%, while manufacturing sector growth rate declines from 1.4% in 2017 to 0.1% so far this year.
One major problem lurking and it doesn’t seem to be going away is inflation. The TEMT’s report puts the annual average rate of inflation at 20.4% compare to 2017’s 12.4%. This is expected to increase at 27.0 % before the end of this year.
The number might surge but “unless the ongoing policy measures being implemented by the Government are sustained,” the TEMT report says.
The TEMT is cognizant that the depreciation of the Liberian Dollar is due to the high demand for foreign exchange, although its approach to remedy the situation appeared to be a flop. US$25 million infused in the economy to mop up excess liquidity of the Liberian dollar yield little fruit.
By the end of August 2018 over L$15,477.85 billion of currency was outside of the banking system, constituting 90.4 per cent of the total currency in circulation, according to the Central Bank of Liberia.
The government had argued that excessive currency outside the banks was the “main source of pressure on the exchange rate”; therefore, the move to infuse the US$25 million was a short-term solution.
However, the move showed little impact, sparking concerns that only few well-connected businesspeople benefited out of cronyism.
Minister Tweah later justified that passing the money through the commercial banks wouldn’t have made impact.
Explained Tweah: “The goal at that point of the President’s mandate was to mop up Liberian dollars directly from the market, not to take Liberian dollars that are in the banks… so if we want to take one billion [Liberian] dollars from Logan Town, New Kru Town or Mamba Point, you don’t go to the bank account and take it from there, it’s on paper; so, you go to someone in New Kru Town who has the money and can sell his Liberian dollars to you. This was the direct mopping that happened, this was why the rate moved from 163 and it came down to 152.”
Was US$25 Million Infused?
The Finance Minister has been under pressure from the media and the Legislature to give a breakdown of how the money was injected into the economy.
And a report, a copy of which has been obtained by FrontPageAfrica, shows that the US$15.0 million was infused directly into the forex market from July 17 to October 26, 2018.
“Since the commencement of the direct intervention strategy, the CBL has mopped up a total amount of L$2,303,363,898.00, representing 59.4 percent of the L$3.88 billion of currency outside banks (COB) initially targeted. The United States Dollar equivalence of the amount mopped up as at October 26, 2018 is US$15.0 million, reflecting 60.0 percent of the US$25.0 million earmarked for the Intervention,” the report states.
Also, it says “additional US$2.0 million” was sold at an exchange rate of L$156.5709/US$1.00 through a special auction to a petroleum importer and dealer Total Liberia Incorporated on October 30, 2018.
Unlike Total Liberia, the report doesn’t outlined or named other businesses that participated in the US$25 million auction but argues that there is a “slowdown in the rapid depreciation of the exchange rate as experienced up to July 17, 2018”.