Economic Response To Covid19- Liberia In Waiting Mode
The effect of COVID19 has been massive. At least 185 countries have recorded confirmed cases. Businesses have mostly suffered losses, with a few that are amenable to the social distancing and self-isolation lifestyle such as online businesses being the winners.
Stock markets around the world have taken a lot of hit, with the biggest being in the first quarter of this year. This means that people or businesses that buy and sell shares are mostly dealing in shares that have lost a lot of value. If your retirement and pension fund is invested in a company’s shares, and that company’s shares are among the many companies whose shares have fallen, then you are likely to lose money unless there is some rebound that brings you in money.
Report by Paul Collins, [email protected], Contributing Writer
If you are a resident of Liberia and you think you are not affected by stock markets because of the absence of stock markets in Liberia, just hope also that your bank does not hold securities in any of the numerous stock markets abroad, because if they do, you might just be exposed. Stock markets in short are a significant indicator of the performance of any economy, which have the effects of globalization pass-through, thus providing a fair reflection of the health of the global economy.
Job losses are a common phenomenon around the world also due to the social distancing and other COVID19 precautionary measures. In the USA it is estimated that more than 30 million people have lost their jobs in the first quarter of this year, while in the UK the comparative number is at least a million people.
In Liberia the World Bank estimates (2016) that 56% percent of the total population (15yrs +) participate in the workforce, and estimates (using ILO modeled estimates) that 1.5m are employed, with about 20% of the employed being salaried or waged employees. This implies that 80% of the employed are unsalaried or unwaged employees. I think this 80% refer to the craftsmen, marketers, farmers, etc. As things are right now, the salaried employees are on lockdown with only “essential” service providers being allowed more scope to operate.
We can argue that civil servants’ (or government workers’) jobs are safe, but we refer to around 70 thousand people, most of whom actually survive on a daily hustle (and not their salaries). The remaining salaried workers are in the private sector that is now virtually shut down. The big businesses will struggle to pay salaries while the medium to small businesses will simply not be able to pay since they are not in business.
As for the unsalaried or unwaged employees, most of whom have been chased out of their business centers by our joint security, unemployment in effect can therefore only be estimated to be on the increase. Unfortunately, the system to measure more fairly the rate of unemployment is not readily available and therefore makes informed policy evaluation very difficult.
The problem of unemployment would have been alleviated had our economy been advanced in the use of technology, where more and more services were online and technology based. That way, like the developed economies more jobs could have been saved by simply asking people to work from home and online. Same with schools- universities and grade schools could redirect most of the work to online platforms rather than physical attendance on campuses.
Demand for petroleum products around the world appears to have slumped, contributing to the sharp fall in the price of petroleum products around the world, particularly in the stronger economies. People simply are staying home and not driving around town, hence dealers must be carrying huge stockpiles of the product. In Liberia however, the economy is yet to experience the global pass-through of that price drop as petroleum products remain at their high levels as prior to COVID19, even though the dealers import the product now at the current low world market price.
During the ebola outbreak in 2014 Liberia economic growth slowed to 0.7% from a 2013 high of 8.7%. Prior to the COVID19 pandemic, the IMF had projected GDP growth of 0.4% for Liberia. Now that projection has been revised to -2.5%. This is like saying the economy is going to be far worse than it was during ebola.
Already GoL revenue generation gains reportedly achieved in March quarter end are very likely being eroded in the quarter to June as collections enforcement, which usually involves physical attendance at the taxpayers’ premises and physical attendance by tax payers at CBL collectorates, have slowed. Digital payment methods such as mobile money, electronic fund transfers and use of points of sales are still in their embryonic stage, despite being touted for a number of years as a major reform project (CBL payment system reforms since 2012).
Just today I tried paying for gasoline at a major retail outlet, but they wouldn’t accept payment by mobile money or visa. They wanted physical cash. The banks are only serving a handful of people a day, while the ATMs are normally out of service. Revenue collection is therefore very likely to have been hampered by social distancing and other COVID19 precautionary measures.
The IMF reports that at least 195 countries have moved to implement policy responses to cushion their economies from the effects of COVID19. Most monetary policy actions are expansionary and accommodative. Deliberate actions are being taken to increase the money supply or allow the money supply to increase. Accessing funds by the general public from their banks is also being made easy.
President Paul Kagame of Ruwanda is reported to have complained (in effect) that the stronger countries in these challenging times are simply able to print more money (quantitative easing- QE) to expand the money supply and increase government to people (G2P) payments without borrowing except from their central banks (in effect borrowing from themselves), whilst the smaller countries have to beg and borrow from the stronger countries.
On our monetary policy response, this is what the IMF says:
“No changes to monetary policy are envisaged at this stage, as the shortage of Liberian dollar banknotes coupled with the lack of confidence in the banking system precludes any meaningful response to the pandemic using monetary policy instruments. In mitigation of this situation, the CBL is expediting the procurement of additional banknotes to help meet the Liberian dollar demand in the economy. In response to the difficulties being felt by the private sector, the CBL is also allowing banks to practice limited forbearance on asset classification, provisioning, and lending policies in hard-hit sectors of the economy, while remaining vigilant for signs of banking sector stress.
On the payments side, to better facilitate the use of electronic payments, the CBL has suspended fees and charges for most electronic transfers and point-of-sale outlets used by merchants and mobile money operators; and increased allowable daily limits. The bank has also increased the allowable daily and aggregate limits for mobile money transactions for a period of three months.”
Fiscal policy responses according to OECD study have focused on maintaining liquidity and business cash flows to cushion the effects of COVID19. This has seen an increase in G2P payments. In the case of Liberia, our fiscal policy response is also summarized by the IMF as follows:
“Aside from some measures to speed up and facilitate the importation process—including by removal of the pre-shipment inspection requirement and some protective surcharges—and to develop a preparedness plan, no other special fiscal measures have yet been adopted.
The authorities are hoping to finalize a COVID-19 preparedness plan in conjunction with the donor community. The draft is still evolving. The World Bank has to date approved US$1.5 million available for actions under the plan from its overall funding envelope and utilization of this has begun.
Areas of concentration under the plan include support to health care workers, purchase and rehabilitation of health care equipment, procurement of drugs and other medical supplies, deployment of surge staff to contact tracing activities, border areas, rapid response teams, training of responders, planning, communications and information sharing, staffing and equipping of laboratories, and logistical and supply support.”
These summarizations of both Liberia’s fiscal and monetary policy responses to COVID19, seem to suggest that Liberia is still planning and waiting to actually start doing something. The IMF also seems to suggest that the only funding being used by the Liberian government is the US1.5m that has been made available by the World Bank. Meanwhile, we have been partially locked down for 21 days now and counting…