MONROVIA – The World Bank has projected that an additional 335,000 to 526,000 Liberians are now at risk of falling below the poverty line in 2020. This disclosure is contained in the Bank’s update report on the country’s economy. The report was launched on Thursday at midday virtually.
The report notes that the share of households living below the national poverty line is projected to rise to 65.2 percent in 2020 under the baseline scenario and to 68.9 percent under the (moderate) downside scenario.
The World Bank captured that Liberia’s fiscal deficit widened from 4.8 percent of GDP in FY2018 to 6.2 percent in FY2019; domestic revenue mobilization remained low and non-discretionary expenditures accounted for almost 80 percent of domestic revenues in FY2019. Approval of FY2020 budget was a critical step towards fiscal consolidation.
Liberia faces a high current account deficit, low reserves and an elevated financial sector vulnerability.
The Bank projected that the path to Liberia’s economic recovery will be especially challenging due to the country’s vulnerable public health and economic impacts of COVID-19 and being that the country’s range of potential policy responses are narrow.
Large macroeconomic imbalances, low fiscal reserves and forex buffers limit the government’s options for addressing COVID-19 crisis, the economic updated stated.
Potential policy response for the repair of the economy is also complicated and exposed to shocks by the fact that an estimated 80 percent of total employment in the country is on the payroll of the government.
As the current outlook is highly uncertain, with risks tilted heavily to the downside, real GDP is projected to contract by 2.6 percent in 2020, down 3.2 percentage points from the pre-COVID baseline projection in January 2020. Under the moderate downside scenario, real GDP could contract by an additional percentage point to 3.6 percent in 2020 and recover more slowly.
According to the World Bank, COVID-19 has thrown the world in the worst economic crisis since the Great Depression. The COVID-19 poses an unprecedented negative shock to the Liberian economy, affecting people’s lives and livelihoods, but also delaying implementation of the government’s Pro-poor Agenda for Prosperity and Development.
The near-term outlook is uncertain and the risks are tilted to downside. Economy is projected to contract in 2020, and poverty rates are projected to increase. Given limited domestic resources, timely support from Liberia’s development partners will be vital to fund social protection policies to safeguard household welfare and prevent the erosion of human capital during the crisis.
There is cause for cautious optimism. A continued focus on macroeconomic stability and structural reforms to promote productivity-driven growth and economic diversification while coordinating an effective response could build resilience and spur a robust recovery over the medium-term.
As the current outlook is highly uncertain, with risks tilted heavily to the downside, real GDP is projected to contract by 2.6 percent in 2020, down 3.2 percentage points from the pre-COVID baseline projection in January 2020. Under the moderate downside scenario, real GDP could contract by an additional percentage point to 3.6 percent in 2020 and recover more slowly.
Actions Needed for Recovery
The Report noted that productivity-driven growth and diversification will be central to Liberia’s post-pandemic recovery and continued development. This will require: (i) upgrading the country’s existing production and export base; and (ii) building institutions to broaden the country’s endowments, strengthen competitiveness, and expand opportunities for productivity-driven private-sector growth.
To accelerate progress on economic diversification, build on the institutional and structural reforms initiated prior to COVID-19 crisis. E.g. structural reforms supported by the programmatic Inclusive Growth DPO will alleviate constraints on productivity and facilitate economic diversification, and the series encompasses measures targeting agriculture, energy, trade, tax administration, SOE oversight, and debt management. The series also supports reforms to promote economic and social inclusion by facilitating access to digital financial services and building a viable national social safety-net system, with a special focus on women and girls. Accelerating the development of special economic zones (SEZs) could address key policy and infrastructure constraints.
Macroeconomic stabilization will be vital to support improvements in productivity and competitiveness. Key fiscal policy reforms include: (i) increased revenue collection, including revenues from natural resources and agricultural concessions; (ii) systemic improvements in expenditure efficiency, including the efficiency of external aid; (iii) a prudent debt-management policy; and (iv) structural reforms to promote growth and encourage economic diversification.
Macroeconomic stabilization measures should be accompanied by reforms to strengthen institutions, improve the business environment, and enhance the provision of basic services and infrastructure
Accelerating the development of special economic zones (SEZs) could address key policy and infrastructure constraints.
Introducing a National Single Window for trade would lower the cost of importing and exporting and curb opportunities for corruption.
Improving the PPP framework could mobilize additional sources of funding and financing for infrastructure. Accelerating the development of financial infrastructure to support a more robust and equitable recovery.
Leveraging the digital economy to accelerate job creation, promote inclusive growth, boost productivity and competitiveness, and enhance governmental efficiency at a modest fiscal cost.
Implementing a mix of health, education, worker training, and social protection policies to improve productivity and enhance the employment prospects of working-age Liberians.
Strengthening the social protection system’s resilience to shocks and improving job quality in the informal sector to promote the welfare of poor households.
Building statistical capacity and monitoring the impacts of COVID-19.
