Monrovia – Liberia’s economy is so shredded because President Ellen Jonson Sirleaf started her government’s economic policy wrongly by focusing on supply-side economics, according to Dr. Lester Tenny, assistant lecturer of economics at the University of Liberia Graduate School.
Report by Lennart Dodoo, [email protected]
“Our problem can be dated back with the formation of this government – the nature of the policy in place – the government adopted what we call supply-side economics,” he said.
Speaking on UNMIL Radio’s Business and Economy program recently, Dr. Tenny explained supply-side economics as “A kind of economic system where you tend to incentivize multinational [companies] who want to invest in your country.”
“Incentivize means you try to give them tax break, tax holidays and that was not prudent”.
He linked supply-side economics to the regime of former U.S. President Ronald Regan in the ‘80s – Reaganomics – which plunged the American economy into an acute deficit of almost a trillion United States dollars.
“So supply-side economics is not a prudent form of economic system that should have been adopted by our government,” he noted.
He referenced the 25-year tax holiday the government offered the China Union.
“No country survives in the absence of domestic resource mobilization, meaning that you cannot survive in the absence of taxes.”
“But this is the case where you have given 25-30 tax break to a concession company.”
“How do you intend to mobilize resources when you have intentionally surrendered your right to raise revenue simply because you want them to come and invest,” he averred.
Scavenging The Budget
According to the Economics lecturer, a research through econometrics analysis has shown that Liberia’s budget shouldn’t be half a billion dollar, instead of a quarter million.
The continuous inflation of the national budget, he said, creates a window for scavenging by the various branches of government.
“So instead of running away with a higher budget that every time you would have a deficit – you needed to have conducted a simple regression analysis using threshold model and you’ll find out exactly what you needed, but what happened is that you balloon the budget and when you inflate the budget everybody would feed on the budget, not knowing that the budget is just a projection.
It’s not any money in the vault.
“When you project half a billion dollars, Legislature will increase their budget and they don’t care where you raise it from, they’ll increase their allotment. That is scavenging of the budget because you created the opportunity.”
Dr. Tenny iterated that the threshold for Liberia’s budget should be about US$240 million, but with the inflation of the budget, the branches of government also inflate their expenditure, thereby putting the government under pressure to raise the budget.
A sizeable amount of a quarter million United States dollars as threshold would have given birth to growth in the country’s economy.
“There is an optimum level at which government can mobilize resources, and expend resources, any point beyond that will have a negative effect on the economy.”
“Why you think lawmakers were earning US$3,000 and now they’re making US$15,000?
“It’s because you created the platform for them to make their own increment,” he added.
Budget Increment Is Not Growth
Liberia’s economy is not experiencing growth because of its recurrent nature. Like many ministries and agencies have confirmed in the past, most of their allotments are used for salaries with little left for operations.
“The budget should have an investment component because it through investment you can experience the real dividends of growth will be seen, not through wages and salaries – recurrent expenditure will not generate growth because they’re consumables,” he said.
He wondered why the government should be paying 103 lawmakers US$15,000 per person.
“The Liberian people are undergoing immense hardship because of simple error – whether it’s not deliberate I cannot tell – simple error on the part of national government. We keep getting it wrong and we should not be getting it wrong at this stage.”
According to Dr. Tenny, Liberia’s economy would resuscitate if government goes back to the drawing board.
He noted that there is a high risk of the next government suffering bankruptcy, but added that if measures can be put in place now, such bankruptcy will not last beyond 4-5 years and the government would experience growth.