International Partners Privately Expressing Concerns over Liberia Reportedly Using Project Fund to Pay Recurrent Expenditures
Washington – In the aftermath of last week’s World Bank’s Spring Meeting, Liberia’s international partners are reportedly expressing private concerns about the deterioration in the Liberian economy, with blame put on the government for exacerbating already dire economic circumstances. The Weah Administration is continuing its loosened fiscal stance by spending more money than revenues collected. Tens of millions of dollars have been borrowed from the Central Bank of Liberia (CBL) with slow or non-payment from the government. Despite warnings from the IMF in their last Article IV consultation in March, the government continues to spend more money than it collects.
Funds from development partners including the World Bank and the Norwegian government were reportedly used to pay some government’s recurrent expenditure. Sources say problems with the Norwegian funds predate the Weah administration and delays in implementation of projects with the Norwegian support to the forestry sector has been stymied by the slowness in granting of land. When Liberian officials were confronted, according to international sources, on use of road construction funding for recurrent expenditure, they said paying civil servants’ salary was more important than development since not paying salaries would impact the country’s stability and cause further economic decline. The country’s economic planners have put most of their efforts into paying the huge monthly wage bill, estimated now to reach about 30 million dollars. The government still has not found a way to expand the private sector to absorb the horde of young unemployed people.
International partners are very worried about the large amount of Liberian dollars out of the banking system, with estimates ranging from 20-25 billion dollars, while only 1.2 billion dollars are in the banks. Despite banks showing capital adequacy, with most of their assets in loans to the private sector, yet there is operational illiquidity with banks having challenges to pay customers, resulting into delays. Small amounts like $5,000 are split up and customers are routinely told to make two or three trips to fulfil their withdrawals or encashment of checks.
Wage Bill Expanding
The public wage bill has expanded to 72 percent of recurrent expenditure with estimates of at least 25 thousand new employees added by bypassing the normal civil service procedures over the past 15 months since the Weah Administration was inaugurated.
Liberia lost ranking in the 2019 World Bank Doing Business Survey, with the country now 174 out of 190 countries. Liberia was 172 in the 2018 rankings. That would make Liberia the 16th worst place on the planet to do business. The current survey period ends May 1 and Liberia so far looks bad, with the ranking coming out in October, the country could go further down. Liberia is being obstructed by difficulties in economic governance, fiscal stance, corruption and burdensome regulations such as payment of the widely unpopular container tracking fee. National Port Authority officials told foreign partners the fee is necessary as shipping companies charge the same without any of the funds coming to government. If Liberia loses its ranking further, it will send a bad signal to investors. Liberia is reversing the gains it made early on in the Ellen Johnson Sirleaf administration on the ease of doing business, while two West African countries, Togo and La Cote d’Ivoire were among the top ten improvers in 2019, according to the World Bank Doing Survey published in October of 2018. The ranking comes out yearly in October. 2020 figures will come out in October of this year, representing data from 2019. Meanwhile, Rwanda continues to keep its ranking in the top ten of improvers.
Quite recently, the Weah administration used heavy handed tactics in dealing with some members and officials of the Liberia Chamber of Commerce who had expressed their dissatisfaction with the imposition of the dreaded container tracking payment. Marwan Eid, Vice President at City Builder, son of Ezzat Eid, owner of Royal Hotel and the City Builder Chain was reportedly placed on a prisoner bench at NSA for hours and released in the evening.
Liberia declining economy presents serious political problems for the Weah Administration. That situation is increasingly becoming worrisome to development partners who see signs of decay in the body polity, with a demonstration planned on June 7 by disaffected citizens and counter protests by supporters of the government on the same day, with potentially very dangerous outcomes. The protests are reportedly being planned to denounce corruption, fiscal irresponsibility, and the still outstanding matter of the US$25- million-dollar mop up money, which was supposedly being audited by the GAC, whose two-week mandate has long expired. Demonstrators plan to ask President Weah to dismiss Minister Samuel Tweah and have him prosecuted for squandering monies that came out of the CBL reserves at the Federal Reserve Bank in New York.
In a video making the rounds on social media, Liberian market women decry the hardship they face in the country due to rising prices and joblessness of their husbands. One woman on tape was heard that she is wearing the pants in the family as her husband has been unable to find employment, a situation that many families face with vulnerable employment (portion of the workforce in the informal sector) now more than 80 percent according to the 2016 Household Income and Expenditure Survey (HIES). Over 50.9 percent of Liberians are considered poor, with Liberia now considered the poorest country in the world according to USA Today, a leading American daily publication, gleaning data from the World Bank with the country’s annual per capita GNI at only 710 USD.
Net Foreign-exchange reserve Put at 19M
Adding to the dilemma, multiple sources from the Central Bank of Liberia have confided to FrontPageAfrica that Liberia’s net foreign exchange reserve is now 19M United States Dollars, a steep decline of US 135.8M from December 2017 towards the tail end of the Ellen Johnson Sirleaf administration.
According to the CBL Annual Report of 2006, net reserves of the CBL at the end December 2006 was US$21.8 million compared with US$6.5 million at end of December 2005. This means as of January 2006, the Sirleaf Administration inherited a net reserve position of only 6.5M USD and through a combination of different economic measures, built the net reserve to US$154.8M as reported by the Central Bank in its 2017 annual report that shows balances as of the end of December 2017.
Like other central banks around the world, the Central Bank of Liberia is the custodian and manager of Liberia’s foreign reserves. Foreign reserves include foreign currency assets, Special Drawing Rights and other assets of governments.
The benefits associated with high foreign exchange reserves are enormous whilst the reverse is true for the disadvantages. First, countries use their foreign exchange reserves to keep the value of their currencies at a fixed rate. A strong reserve position helps with exchange rate stability something Liberia badly needs.
Foreign exchange reserves also help to maintain liquidity in case of an economic crisis. Foreign reserves can be used by countries to stabilize their currencies especially during financial crisis when foreign fund outflows increase as it is currently in the case of Liberia. With a solid reserve position, the CBL could keep the market steady. This of course serves as a reassuring platform for foreign direct investment.
A good reserve position provides confidence. The central bank assures foreign investors that it’s ready to take action to protect their investments. It will also prevent a sudden flight to safety and loss of capital for the country. In that way, a strong position in foreign currency reserves can prevent economic crises caused when an event triggers a flight to safety.
With all these advantages, it is clear that Liberia needs to adopt strong mechanisms ensuring that our reserve position is strong. This news of the country’s net reserve placed at19M USD is definitely that a positive news for investment and the current economic woes.
It can be recalled that it is out of this very reserve the Weah government recently utilized when it announced a USD25M stimulus package for the sole purpose of mopping up “excess liquidity “from the market.