Monrovia – Liberia is experiencing one of the worse devaluation of the Liberian dollars against the United States dollars in recent years with the two currencies-legal tenders for the country now trading at L$96 or at some places LD$97 to US$1.
Report by: Al-Varney Rogers & J.H. Webster Clayeh [email protected]
“We have more Liberian dollars in circulation, chasing few United States Dollars that’s one of the reasons responsible for the depreciation,” Central Bank of Liberia Governor Milton Weeks said.
The Liberian dollars is depreciating at what many see as the wrong time when the government is introducing a system where government employees are to be paid in Liberians dollars instead of United States dollars as has been normal practice.
Some government employees are opposed to the decision to pay their salaries in Liberian dollars due to the devaluation of the Liberian dollars. There are threats of strike actions from some employees should government continue its plan to pay them in Liberian dollars.
Institution such as the Liberian National police is yet to pay police officers for more than two months, a situation blamed on the confusion over the currency for payment of salaries.
By the beginning of July the Liberian dollars was trading around US$94 to US$1 but the devaluation has increased and amid public concerns, Central Bank of Liberia Governor, Milton Weeks has declared that several factors are responsible for the situation.
“In recent times, the Liberian dollars is depreciating due to several underlying factors on account of external, structural and monetary,” Governor Weeks said Thursday.
He says high demand for foreign exchange is one key factor.
“It is important to note that as the festive season approaches, demand for foreign exchange to service import payment is usually high as evidenced by this level of oversubscription,” Governor Weeks continued.
UNMIL Drawdown, other factors blamed
In an attempt to project a clearer picture that the Central Bank of Liberia is on top of what is now becoming a financial crisis, the CBL Executive Governor blamed the Liberian dollars depreciation on the 2014 Ebola outbreak, the drawdown of UNMIL, decline in the country primary commodities price and the July 26 celebration as some of the reasons responsible for the poor performance of the economy.
“The drawdown of UNMIL, a major spender in the Liberian economy, is affecting micro and medium enterprise and informal workers, many of whom operate in the services sector catering to the domestic market.
The drawdown has reduced the inflow of US dollars into the economy, thereby putting further pressure on the Liberian dollar,” Governor Weeks said.
But critics argue that the Executive Governor’s comment about the drawdown of UNMIL as one of the factors responsible for the depreciation of the Liberian dollars should not be taken seriously, adding that the drawdown is a known fact and that plans should have been on its way to mitigate the level of problem the drawdown is causing.
Critics are also blaming Governor Weeks’ predecessor, now presidential hopeful, Dr. Mills Jones, loan package as another reason responsible for the huge circulation of the Liberian dollars on the market.
Though Governor Weeks acknowledged the huge circulation of Liberian dollars, he felt short of mentioning his predecessor’s loan initiative as factor responsible for depreciation.
The loan scheme which expanded during the tenure of Governor Jones saw millions of Liberians dollars pupped in the economy through loan schemes to local entrepreneurs.
“We have more Liberian dollars in circulation, chasing few United States Dollars that’s one of the reasons responsible for the depreciation”, Governor Weeks admitted.
Going out of business
A money exchanger, Diggs Monger, says that the increase in the exchange rate is putting him out of business.
“Since the rate started climbing up, things have been hard. To change US$80 per day is not something easy,” Monger said. “The U.S rate is not stable—today you change for LD$96 the next day the rate will be 97 or LD$98.”
Monger believes that U.S dollar is not circulating, adding that it is the factor responsible for the increase in the exchange rate. “By next week this rate will be 99 or 100. US dollar is scarce.”
Recalling, the CBL Governor said the Liberian economy grew at an average of 7.8 percent from 2006-2013, prior to the Ebola Virus Disease (EVD) outbreak in 2014.
He added that the economy is projected to rebound to a little over 2.0 percent in 2016, buoyed by increase in gold production and a rebound in services and construction.
“However, the attainment of this growth projection may likely be reversed downward due to statistics received during the first half of 2016 on gold (key driver of growth for 2016), rubber and iron ore production,” Governor Weeks said.
Giving hope, Governor Weeks said that over the medium term (2017-2021), the economy is expected to recover with a projected average growth of 5.8 percent, 2.0 percentage points lower than pre-EVD outbreak level of growth.
He also noted that the success of the medium-term growth will be driven by the agriculture, forestry, manufacturing and service sectors.
The CBL boss averred that Liberia has experienced fall in prices of the country’s primary commodity on the global market, thus affecting revenue generation.
“Export receipts declined by more than 37 percent in 2015 relative to 2014 as result of the declines in the country’s primary commodity export (iron ore and rubber) on the global market”
“. Though, in the same period, import payments also declined by 15.5 percent. However, it was not enough to mitigate the persistent trade deficit.”
Governor Weeks said the drop in prices of primary commodities has caused severe pressure on the foreign exchange market and the revenue generating capacity of the government.
“Although personal workers’ remittances have increased over the period, the persistent trade deficit has continued to outweigh the impact of the inflow of remittances. The global commodity price slump continues to adversely impact the growth prospect of the Liberian economy. This has also undermined government’s revenue generating capacity and its foreign exchange earning capacity.”
To mitigate the current levels of Liberian dollars depreciation for the first half of 2016, he added that the CBL intervened in the Foreign Exchange (FX) market with amount of US$14.5 million (US$5 million in June alone), US$5 million lower than the level of intervention made in the same period 2015. He said the bank lowered intervention largely due to policy on reserves accretion.
The CBL governor dispelled rumors that the depreciation of the Liberian dollar is due to the printing and release into the market of additional currency notes.
“This assertion is simply not true. The CBL wishes to emphatically say that no additional currency has been released into the system. The imminent release of the new bank notes will be aimed primarily at replacing worn and mutilated notes,” Governor Weeks said.
Liberians Speak out
Theodore J. Nana a money changer on the Randall Street in Monrovia is lamenting the situation.
“Our currency is depreciating because everything in Liberia is paid in United States dollars. Government needs to put our currency first, meaning if you receive money from another country, government needs to set up a system to exchange every currency that is coming from out of the country to Liberian dollars.
Before, I used to change at least two fifty to three hundred United States dollars but as for this Independence Day season, I can change up to six to seven hundred United States dollars”.
Eric Weah, student, University of Liberia is blaming the dual currency regime.
“Since we as a country do not have the ability to produce some basic commodities like rice, like other countries, we should decide to use one currency instead of using dual currency, meaning it will be prudent that major commodities be sold in Liberian dollars and the government can restrict the rate at the central bank where major business tycoon can and be given a stable rate.
Besides, government also needs to monitor the rate because other guys don’t have bureau, they just stand any part of the street and change money”, said Weah.
Selma Joejoe, student, University of Liberia wants the forex market to be regulated.
“We should have a benchmark set for people who are international business people. How they will get the US that is the only way you can control the currency because if you do not do and everybody is using the US dollars in different direction, the money will still have suppression on the Liberian dollars.
You see the Fula people every day passing around with Liberian dollars on their back looking for US dollars. That business should be done in central bank that is the only way you can get control over the Liberian currency”.
It is predicted that the situation will get worse during the close of the year. During the months of November and December the Liberian dollars normally depreciate against the United Stated due to the increase in Liberian dollars in circulation on the market when small savings clubs in several communities around the country distribute their yearly group savings, thereby pumping more Liberian dollars on the market.