Economic Analysis
Liberia

Liberia

Population 4.5 million
GDP per capita 728 US$
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Synthesis

major macro economic indicators

  2017 2018 2019 (e) 2020 (f)
GDP growth (%) 2.5 1.2 0.4 1.2
Inflation (yearly average, %) 13.2 23.5 24.5 20.5
Budget balance * (% GDP) -5.1 -5.4 -6.0 -6.4
Current account balance (% GDP) -23.4 -23.4 -21.2 -21.0
Public debt (% GDP) 36.9 42.2 48.7 54.4

(e): Estimate. (f): Forecast. *Last fiscal year from July 1, 2019 to June 30, 2020.

STRENGTHS

  • Diverse natural resources (rubber, iron, gold, diamonds, oil)
  • Financial support from the international community
  • Member of the Economic Community of West African States (ECOWAS)

WEAKNESSES

  • Infrastructure shortcomings
  • Dependent on commodity prices
  • Significant levels of poverty and unemployment; shortcomings in education and healthcare
  • Recent Ebola epidemic, which could reoccur
  • Recent and fragile democracy; high levels of corruption
  • Difficult business climate
  • Dominant informal sector

RISK ASSESSMENT

Sagging growth and high inflation

After a poor performance in 2019 by the Liberian economy, growth will recover somewhat in 2020, driven by the relative resilience of the primary sector and investment. However, growth will remain significantly below the rate observed in the pre-Ebola period (about 7%). The mining sector will continue to fuel growth, mainly through gold production, which generates almost half of exports, ahead of iron. Agriculture and forestry, which employ 60% of the population and account for one third of GDP, are likely to be resilient due to the ramp-up in rubber and palm oil production capacity. Public investment is set to increase, supported by concessional loans from international organisations. In this regard, the World Bank has approved a new partnership for 2019/2024, with aid devoted, among other things, to building infrastructure and upgrading roads.

Mainly owing to the depreciation of the Liberian dollar against the US dollar, inflation will remain very high and will weigh heavily on private consumption. Nonetheless, inflation could gradually decelerate thanks to low oil prices and tighter monetary policy. In February 2019, the central bank introduced a new policy framework, including a standing deposit facility and bond issuance, to mop up excess liquidity and bring it into the banking system. Besides trying to reduce inflation, the objective is to tackle the dominance of the informal economy (more than 90% of the money in circulation is held outside the banking system) and dollarization (90% of loans and 80% of deposits), which weaken the effectiveness of monetary policy.

 

Deficit financing still dependent on foreign aid

The government deficit is expected to increase further in fiscal year 2020, notwithstanding the government's efforts to reduce the public wage bill, which is the largest expenditure item (65% of the budget). Capital expenditure (12% of GDP) will increase, chiefly to finance development projects related to the Pro-Poor programme. At the same time, domestic revenues should be constant around 14% of GDP, the same share as international aid, which will also be stable. As a result, public debt will continue to grow rapidly, almost doubling its 2016 level by 2020. External debt represents the largest portion – at 70% of the total and almost entirely composed of multilateral and concessional loans – but the domestic portion has recently increased because of borrowing from the central bank.

The current account deficit, which is still considerable despite substantial international aid, is expected to be stable in 2020. On the one hand, the large trade deficit (18% of GDP in 2018) will continue to narrow thanks to a modest increase in exports and a contraction in imports, driven by the sharp depreciation of the Liberian dollar against the US dollar (USD 1 was worth 97 Liberian dollars in July 2017, compared to 210 in October 2019). On the other hand, however, profit transfers abroad will remain high, while the global slowdown, particularly in the United States, will affect remittances from expatriates to Liberia and, by extension, the foreign exchange reserves. The current account deficit is financed by FDI (11% of GDP), concessional multilateral loans and the use of foreign exchange reserves, which will be equivalent to less than two months of imports in 2020.

 

A President under fire

Former footballer George Weah was elected President in December 2017. His election, after two civil wars (1990/1997 and 1999/2003), marked the first democratic and peaceful transition between two elected presidents in 73 years. Through his Pro-Poor programme, President Weah has affirmed his commitment to tackling the lack of infrastructure, promoting access to basic public services, and fighting corruption.

However, the sluggish economy, soaring inflation, as well as recurrent corruption issues, are fuelling public protests. Demonstrations have been organised since end-2018, mainly in the capital Monrovia. They have received the support of some opposition parties since June 2019. In particular, questions have been asked about the governance of the central bank because of recent findings regarding the lack of oversight over currency management, which may have opened the door to potential illegal transactions. Despite the President's response, which included asking the governor to resign, mistrust of public institutions may grow further.

The business environment, which is hurt by weak infrastructure and legal property rights (only just partially introduced by the new government), remains difficult, with Liberia coming 175th out of 190 in the Doing Business 2020 ranking.

 

Last update: February 2020

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