“Ensuring Macroeconomic Stability and Sustained Growth: A Critical Pathway to National Reconciliation and Social Inclusion in Liberia”

I extend thanks and appreciation to the Institute for Policy Studies and Research at the University of Liberia and the other partners who organized this two-day “Dialogue on National Reconciliation and Social Cohesion in Liberia” for inviting me to speak on the topic “Ensuring Macroeconomic Stability and Sustained Growth: One Critical Pathway to National Reconciliation and Social Inclusion in Liberia.” Given our history of violent and deadly social and political convulsions, the criticality of national reconciliation and social inclusion to the achievement of peace and progress in Liberia cannot be gainsaid. The creation of a platform by the organizers of this event for the clash and compromise of ideas and perspectives on how to set our nation firmly on the path of national reconciliation and social cohesion truly demonstrates their love for Liberia.

In an interview with “The Economist” magazine published on April 24, 2015, former British Prime Minister David Cameron said, “The economy is the start and end of everything. You can’t have successful education reform or any other reform if you don’t have a strong economy.” To a large extent, Prime Minister Cameron was right. The state of the economy is at the heart and center of virtually everything that is critical to the well-being and progress of a group of people, the state, and the global community. If the economy is unstable or unhealthy, or to put it more palatably, if the economy struggles, many other things struggle – health care delivery struggles, education struggles, food security struggles, job creation struggles, construction of roads and bridges struggles. When the economy struggles, hopes are dashed; dreams die; anger overthrows joy; politics gets more toxic and divisive; peace gets more fragile and national reconciliation and social cohesion are difficult to achieve.

Understanding Macroeconomic Stability, Sustained Growth and Other Concepts

As I begin to expand on the assigned topic, I would be remiss if I did not give a fair appreciation of the concepts of “macroeconomic stability” and ‘sustained growth”. Many of the previous speakers have shed sufficient light on what “national reconciliation” and “social cohesion” mean in the Liberian context. Hence I will not attempt a cassette replay of what they have said.  The “macro-economy” is the term that economists use to refer to the behavior and performance of the economy as a whole and it deals with such aggregate variables as gross domestic product (GDP), the GDP growth rate, unemployment, inflation, money supply, public debt, fiscal deficit, exchange rate, interest rate, etc. According to the International Monetary Fund (IMF), macroeconomic stability is a situation where these major aggregates grow or evolve “in a steady and durable way, inflation is under control, the financial system is sound… and the economy is resilient to shocks and is not likely to face crisis”[1].

Policy makers affect the performance of the macroeconomy through two major avenues:

  1. which focus mainly on money supply in the economy, inflation, interest rate, exchange rate, the availability of credit and the health of the financial system as a whole. The Central Bank of Liberia (CBL) is the lead entity that formulates and implements monetary and exchange rate policies in Liberia.
  2. , which focuses on how government’s revenues and expenditure affect the economy. The principal Government institution responsible for formulation and implementation of fiscal policy in Liberia is the Ministry of Finance and Development Planning (MFDP).

 In lay man terms, when a country experiences macro-economic stability, its economy is healthy; conversely, when a country experiences macro-economic instability, its economy is unhealthy.  To bring this closer, when inflation spirals beyond 25% and the Liberian dollar-US dollar exchange rate suffers  rapid depreciation; when the Central Bank finds it difficult to service legitimate cash demands of commercial banks consequently making it difficult for the commercial banks  to meet withdrawal demands of their depositors; when the country’s budget is dogged by revenue shortfalls, fiscal deficits and acute difficulties in servicing budgeted expenditure, there is ample indication that the Liberian economy is in macroeconomic doldrums.

The size or output of an economy is reflected in its Gross Domestic Product (GDP); and the key metric for economic performance is the GDP growth rate, or simply the growth rate. While GDP growth is generally regarded as a good thing, the nature of GDP growth largely determines whether it is a good or not so good thing in the long run. Liberia has had a long history of growth that is not anchored on a sustainable and inclusive foundation. In Liberia’s erstwhile five-year development agenda, the Agenda for Transformation (AfT), it is noted

By the early 1970s, iron ore accounted for more than half of Liberia’s export earnings… Concessions employed only 7 percent of workers, despite their large share in GDP and exports.  A mere 3.9 percent of the population controlled more than 60 percent of income, and a large share of the benefits from enclave sectors was repatriated by foreign investors[2].

The deep reversals in Liberia’s economic fortunes and the social and political anarchy that occurred in the latter part of 1970s and during a good portion of the past four decades bear eloquent testimony to be fact that GDP growth driven mainly by the exploitation of extractive or non-renewable resources, or achieved at the expense of the environment or the future generations, or benefits a tiny segment of the population, is certainly not sustainable.

Macroeconomic stability and sustained growth are inextricably linked – sustained growth reinforces macroeconomic stability. In the medium to long run, a country whose growth is not sustainable may also find it extremely difficult to achieve or maintain macroeconomic stability, as the reversals or gyrations that are features of unsustainable growth may also occasion instability in many macroeconomic aggregates. And as noted earlier, it is difficult to consider economic growth as truly sustainable if it is not inclusive or shared. Thus, macroeconomic stability and sustained growth have a positive and mutually reinforcing relationship with national reconciliation and social cohesion. When a large segment of a society – women, youth, the disabled, the elderly or groups of citizens from a particular region, tribe, or religion, etc – feels marginalized or left behind in the economic prosperity of a nation, the seeds of future tensions, conflicts or turbulence are sown and may germinate later with disastrous consequences.

Successive Liberian administrations, since the 1970’s have given prominence to the achievement of macroeconomic stability and sustainable growth in development frameworks or policy pronouncements, albeit with a checkered record of success. Among initiatives and measures taken by the immediate past administration to promote inclusive and sustainable growth, which also promotes national reconciliation and social cohesion, was the allocation of the “County Development Fund (CDP)” and the “Social Development Fund (SDF)” in the budget. The CDF is sourced directly from government revenue and benefits all counties while the SDF is sourced from annual payments made by concessionaires as part of corporate social responsibility obligations enshrined in concession agreements to benefit mainly counties or regions where the concessionaires operate.

Recommendations for Ensuring Macroeconomic Stability and Sustained Growth

I shall now endeavor to tease out some issues and proffer some thoughts on how we can ensure macroeconomic stability and sustained growth, which is one of the pathways to the achievement of national reconciliation and social cohesion. The issues I highlight and the recommendations I proffer are by no means exhaustive; and they are focused largely on the Liberian reality.

Monetary: Uphold the independence and integrity of the Central Bank of Liberia

The main mandate of the Central Bank is to maintain price stability.  It is the responsibility of the Bank to regulate money supply and craft appropriate policies and measures to ensure the soundness of the financial system as a whole and that other macroeconomic aggregates such as inflation, exchange rates, interest rates, etc. are sources of macroeconomic instability. Spiraling inflation and a rapidly depreciating exchange rate are sources of particular concern, as they disproportionately affect the poor in Liberia, many of whom earn Liberian-dollar denominated salaries or trade largely in Liberian dollars and therefore suffer material reductions in their purchasing power, especially when these two macroeconomic indicators are simultaneously getting worse. To be sure, the monetary and exchange rate challenges that bedevil the Liberian economy are complex and teething and, in some cases, structural and historical. As such, there is no silver bullet to solve them. However, one way to begin to meet these challenges or mitigate their impact on the macro-economy is to uphold the independence and integrity of the Central Bank of Liberia.

Former President Charles Taylor, who is now serving a prison term in Britain for war crimes, has been roundly condemned for many things that he did that were not right. As strange as it may sound, I will commend former President Charles Taylor for one of the things that he did that was right. Charles Taylor ensured the formulation and passage of appropriate legislations to improve the soundness of the financial system and to provide for the establishment of an independent Central Bank to replace the erstwhile National Bank of Liberia that operated largely as an appendage of the Ministry of Finance. He selected astute and top-notch professionals to serve in the senior management and the Board of the Bank. The Central Bank under Taylor was widely regarded as an epitome of meritocracy in Liberia, as the Bank, through the visionary leadership of Governor Elie Saleeby, included as part of its strategy to enhance productivity and professionalism, the recruitment of honored graduates of the University of Liberia and other universities. That’s how a person like me, a former student leader at the University of Liberia and a vocal critic of some of the policies of President Taylor, was hired by the Bank and offered a scholarship two years later to earn a Master’s degree at a top University in the United States. Under Taylor, the Central Bank gained a solid reputation as a citadel of professional excellence, not as an enabler of political or other parochial interest.

 Therefore, upholding or maintaining the independence of the Central Bank so that it can craft monetary policies influenced strictly by the interest of the country and not by the narrow interest of a political party, a politician or an individual is one effective way of ensuring macroeconomic stability and sustained growth. The reason why the Executive Governor and the Governors on the Board of the Central Bank were given tenure in the Central Bank Act of 1999 was to bolster their independence so that they do not bend to the whims and caprices of the power that be or personally dabble into national politics. In a sense, the governors of the Central Bank of Liberia are like judges of the Supreme Court. They must be individuals of utmost integrity and must be independent in fact and in perception. The decision they make may help or hinder the achievement of macroeconomic stability and sustained growth. The decision they make could make the poor to become rich or could cause the poor to become poorer.

Unfortunately, for some time now, some posturing, actions and pronouncements from the Central Bank of Liberia have detracted from the independence and professionalism of the Bank and crowded out news of the good works the Bank has been doing, amidst huge challenges, to achieve or maintain monetary stability. The pronouncement by President Weah in his recent State of the Nation Address committing his Government to measures aimed at upholding the integrity and independence of the Bank is a positive step forward. We hope that the Weah-led Government can muster the fortitude to stay this course. We also commend the recent roll out by the Bank of a series of monetary policy measures and instruments aimed at ensuring macro-economic stability.

Fiscal: Improve the Capacity of Budget System to Contribute to Macroeconomic Stability and Sustained Growth
It is often said that the most important document in the land next to the Constitution and the statutes, is the budget.  The budget is where we walk our talk. If we want to know whether a policy pronouncement or commitment from the Government is mere bombast or not, we should check the budget.  The budget shows in practical terms the direction of a nation during the course of the budget period. Contractors should be able to look in the budget to begin to prepare bid proposals for potential projects. Investors should be able to look in the budget to identify areas of opportunities for investment. Ministers, heads of agencies, superintendents, heads of subsidy receiving entities including hospitals and schools should be able to look in the budget to have a fair appreciation of what they could realistically achieve in the coming year and make critical planning decisions to ensure the effective implementation of their mandates.  County stakeholders should be able to look in the budget to plan how they would execute their “County Development” or “Social Development” funds. The budget is the nation’s cake and one of the most effective mechanisms to address issues of social exclusion and marginalization.

Failure to plan or budget properly leads to many disruptive budgetary transfers from approved expenditure lines to accommodate unbudgeted expenditure items often dubbed as “emergency”. In some cases, shortfalls in revenue collections also lead to Government’s inability to disburse approved expenditure items. The net result is the accumulation of arrears to vendors, contractors and, sometimes, to civil servants.  Ministries, agencies, schools, counties and all others whose budgeted appropriations are not disbursed or whose payments cannot be made by Government lose faith in the budget and begin to regard the entire budget process as a source of disempowerment and frustration.

In many instances, in order to fund demands on the budget or to fund the fiscal deficit, Government resorts to borrowing from the Central Bank or the commercial banks and often find it difficult to settle its obligations, thus causing macroeconomic imbalances and complications in the financial system. To improve the budget process and reduce its capacity to cause significant distortions or instability in the macro-economy, I recommend the following:

  1. Revenue Collection. The last budget I had the opportunity to oversee for seven months as Minister of Finance was the 2011/2012 budget in the amount of US$516 million. That the national budget for 2019/2020 is only US$526 million, just a paltry US$10 million difference, speaks volumes to the level of revenue and resource stagnation that has occurred over the past eight years. What this also means is that as demands on the budget have increased significantly on a yearly basis over the past eight years, the resources to service those demands have practically flat-lined. No wonder why the Liberian Government has found it difficult for the past few years to disburse to the counties amounts appropriated for them as County Development or Social Development Fund. These allocations to the counties were originally conceived as a means to enhance sustainable growth and social inclusion. This stagnation in the generation of resources for budget allocation can be attributed to a panoply of factors, some of which are exogenous. However, this problem highlights the critical need to constant explore method aimed at expanding the revenue base and improving revenue collection. The Domestic Resource Mobilization Strategy (2018-2022) developed by the Liberia Revenue Authority and the Ministry of Finance and Development Planning is an excellent blue-print on how to “expand the revenue base, minimize revenue loss, and engender financial deepening in the money and capital markets”[3]. I can only encourage its robust implementation as a means of addressing the revenue challenges that have bedeviled the fiscal system for quite a while now.
  • .  We achieve Allocative Efficiency when we allocate scarce budgetary resources to the true priorities of the country –  to sectors, programs, projects and activities that generate positive economic and social returns. Achieving allocative efficiency will require improvements in the budget preparation and budget approval processes and strengthening of the link between the budget and the existing national development agenda. If appropriations in the national budget are not largely informed by priorities set out in the national development framework document, such document is rendered practically useless. Operational Efficiency in the budget process will mean achieving the maximum possible output or the best possible outcome with a given amount of resource. In other words, operational efficiency means doing more with less and making sure that scarce resources do not leak out through fraud, waste and abuse.

In the Liberian public financial system, one avenue by which scarce resources leak out is through weaknesses in the procurement system. One particular source for concern is the rise in the number of “sole-source” or “single-source” procurement activities, even when the existing realities suggest a competitive procurement method. Free, fair and transparent procurement is not only a means to prevent wastage of resources but can be an effective avenue for national reconciliation and social inclusion. Transparency and fairness in the procurement of services or works means a qualified Liberian citizen or firm can apply for and be selected for a Government job or contract without fear that party, tribal, regional, religious affiliations or backgrounds would be used as the unwritten criteria for selection.      Fully meeting the transparency and other requirements of the Public Procurement and Concessions Act and its regulations and guidelines will bolster the capacity of the Government to fund development priorities and thereby engender national reconciliation and social cohesion.

  • . Development or growth that is financed through excessive debt secured at usurious rates often undermines macroeconomic stability and sustained growth. As a result of a huge debt overhang, the first post-war Liberian Government was deprived of one of the sources of financing development (loans) until 2010 when Liberia qualified for debt cancellation through the Heavily Indebted Poor Countries (HIPC) Initiative, resulting in the cancellation of US$5 billion in external debt. We developed a Medium Term Debt Management Strategy to guide the contracting of new debt, requiring that new loans must be secured at concessional terms. Over time, our debt stock has been steadily rising and the IMF has recently alerted that we are now at a “moderate risk of debt distress”[4]. I must hasten to note that it is unfair to ask the Weah Government not take on new loans when it is servicing loans contracted in the past.  However, we can only advise that the Government proceed with care as it increases the debt stock. The construction of a new road, a new Government complex, a new bridge or the launch of a people-centered initiative is generally considered a good thing. But these crucial questions must always be asked: At What Cost? By What Means? At What Terms?  In order to achieve intergenerational equity, we must avoid the temptation of purchasing today’s development with the poverty of tomorrow’s Liberians.
  • Some of the off-budget pressures that have caused complications in recent years could have been avoided if potential expenditure pressures, particularly those required by the Constitution and the statues, were not just wished away but properly anticipated and budgeted for during the preparation and legislative review stages of the budget. Failure to properly forecast and budget for critical expenditure items eventually occasions significant distortions in the budget process, which in turn have the propensity to contribute to macroeconomic instability.  Lately, concerns have been raised in many quarters over the funding of the Senatorial Elections constitutionally slated to be held in October 2020. In a Senate hearing held this week, thSece Minister of Finance and Development Planning stated that the current budget does not have appropriation for the senatorial election and, as a result, the Ministry of Finance and Development Planning is now proposing the recasting of the budget to accommodate funding for the Senatorial Elections now put at US$17 million. The budget for the Senatorial Elections is likely to be incorporated in the proposed recast budget and the upcoming 2020/2021 which begins in July 2020. Except the Government has benefitted lately from a revenue windfall, we can expect that many other critically important expenditure items would be sacrificed or delayed, probably including civil servants pay, in order to accommodate appropriation for the election.

But how did we reach here? After all, aren’t we implementing the Medium-Term Expenditure Framework (MTEF), which means we budget for a horizon of three years and accommodate major multi-year expenditure commitments?  While I fully appreciate the difficulty fiscal authorities face in budgeting properly and adequately in an environment of very scarce budgetary resources, the fact that the Ministry of Finance and Development Planning did not budget for the Senatorial Elections and the Legislature, some of whose members are slated to run in the elections, did not ensure that the budget it approved incorporated resources for the Senatorial Election, only highlights the need to enhance  planning and deepen due diligence in the budget process.

In budgeting, constitutionally-mandated activities and programs should be treated as first claims on budgetary resources, usually followed by statutorily mandated or required appropriations. The Senatorial Elections are required by the Constitution. Another constitutionally required activity is the conduct of national census. The Government has announced that the census will now be held in 2021. We can only hope that subsequent budgets would incorporate funding for the conduct of the nation-wide census.

Additionally, in his Annual Address to the Legislature delivered on January 27, 2020, President Weah announced his government’s intention to conduct a national referendum later during this year in order to get the endorsement of the Liberian people to effect a few constitutional amendments.  I too support the planned amendments, but I hasten to ask a few questions. Will the referendum be held simultaneously with the senatorial elections? If not, can the limited fiscal space accommodate such a nationwide event, which I estimate may cost not lower than US$10 million if held separately. Are appropriations being made in the upcoming draft budget for 2020/2021 for the conduct of the referendum? If the Government still intends to hold the referendum but fails to budget adequately for it, we can brace ourselves for significant distortions in budget executions as Government scrapes money from some critical sources to fund the referendum. We should be reminded that unlike the holding of the senatorial elections, both the decision and the timing for the holding of a referendum are issues of discretion.

  • Section 13 of the Public Financial Management (PFM) Law of 2009 provides for a contingency fund of not more than 5% of the total annual domestic revenue. For some time now, the amount allocated for Contingency Fund has hardly exceeded 2% of total annual domestic revenue. While this may seem positive, the drawback it presents is that the amount of “Contingency Fund” allocated has proven to be too small to address contingencies that may arise during an entire 12-month period. Section 13 of the PFM Law also provides guidelines on how the Contingency Fund can be accessed as well as the reporting required for its usage. Increasing Contingency Fund within the strictures provided for by the PFM Law will give the Minister of Finance and Development Planning some wiggle room to cater to contingencies without causing significant distortions or disruptions in budget execution caused by budget transfers from other critical appropriations in the budget to address emergencies/contingencies.
  • There are restrictions on transfers to and from personnel cost and goods and services, particularly foreign travel, as well the aggregate amount that could be transferred from an existing appropriation. It appears to many that a Minister of Finance and Development Planning can source funds within the budget at will, but a close review of the PFM Law and its regulations would bring stakeholders to the realization that even if there are funds, the Minister of Finance and Development Planning does not have carte blanche authority to source money from the budget.  I advise that authorities at the Ministry of Finance and Development Planning seriously consider extending awareness of these restrictions to all heads of Government institutions in order to reduce the undue pressure on the public purse that lack of awareness of the restrictions encourages.
  • within the context of the President’s Budget Message and include appropriations for the funding of such pronouncement, programmes and projects in the draft budget submitted to the National Legislature for passage.
  • and Development Planning and the Legislative Budget Office (LBO), a technical unit at the Legislature set up to advise legislators on all budget related issues. Section 19 of the PFM Law states,

All proposed legislation submitted for approval by the Legislature, shall be accompanied by a fiscal impact analysis, stating the legislation’s estimated effect on revenues and expenditures for the fiscal year in which the legislation would become effective, as well as the legislation’s fiscal impact on multi-year planning and budgeting.[5]

We have had situations over time where legislations providing for the establishment of a new Government institution or for some other initiative have been forwarded to the Legislature for passage without adequate due diligence on the medium to long-term cost implications of such legislations. Most of such legislations are supported heavily by donors who may put up short-term funding for the new entity or initiative and expect Government to take full responsibility for the new entity or initiative after a few years.  As the Government tried frantically to rebuild the country immediately after the war and as part of the reform process, there was indeed some scope for the establishment of new agencies. However, given the current limited fiscal space, Government needs to tread more carefully in approving legislations that may have huge long-run cost budgetary implications.


To conclude, let me reiterate that the formulation and implementation of sound monetary and fiscal policies help to achieve or maintain macroeconomic stability. Also, sustainable and inclusive growth reinforces or undergirds macroeconomic stability.  Macroeconomic stability and sustainable growth have a positive, mutually reinforcing relationship with national reconciliation and social cohesion. Macroeconomic stability and sustained growth facilitate or conduce national reconciliation and social cohesion; and keeping all other factors constant, national reconciliation and social cohesion have a positive effect on macroeconomic stability and sustained growth. To be sure, several other factors including the depth and breadth of religious, ethnic, regional, cultural and political divides; the quality and integrity of the justice and judicial systems, sheer greed for power and privilege, may impact national reconciliation and social cohesion in different ways and with varying degrees of significance,  But the incontrovertible truth is that macro-economic stability and sustained growth have a significant positive impact on national reconciliation and social cohesion; and by extension, the peace and stability of the country. Consequently, the leaders of Liberia, especially the managers of the economy, should never lose sight of this reality as they execute their duties and functions.

[1] Dudine,Paulo,  Lecture on Introduction to Financial Programming and Policies, Part 1: Macroeconomic Accounts and Analysis, IMF Institute for Capacity Development, November 5, 2018

[2]Section 1.2: “Historical Issues around Growth and Inequality in Liberia”, Agenda for Transformation (AfT), p.2.

[3] Domestic Resource Mobilization Strategy (2018-2022), page XII.

[4] IMF 2019 Article IV Report for Liberia: Retrieved from: https://www.imf.org/en/Publications/CR/Issues/2019/06/19/Liberia-2019-Article-IV-Consultation-Press-Release-Staff-Report-and-Statement-by-the-47002, p.10

[5] Section 19 of the Public Financial Management (PFM) Law of 2009 of Liberia.