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World Bank Report on Liberia Shows Alarming Inflation, Revenue, Slump and Budget Shortfall

Liberia: Finance and Development Planning Minister Samuel Tweah

Liberia’s economy isn’t doing any better, fiscal deficit continues to widen as recent World Bank report puts it at 5.2% of the GDP in FY 2018 compared to 4.8% of the GDP in the previous fiscal year. This is a result of a significant shortfall in revenues and higher than anticipated non-discretionary expenditures, according to the report.
Non-discretionary spending is spending that is required by a budget, contract, or other commitment. Core non-discriminatory expenditure and interest revenues constitute about 75% of domestic revenues.
The deterioration of the economy has also been attributed to slower than anticipated economic activities which resulted from prolonged period of political uncertainty, tax waiver policies in the run-up to the presidential elections in 2017, unresolved court dispute on the collection of petroleum levy and lower projected grants. All these have summed up to shortfalls in revenue amounting to 20% of the National Budget.
The report referenced the 2016 Household Income and Expenditure Survey which reported that about 50.95% of the Liberian population live in poverty.
“Poverty is more than two times higher in rural areas (71.6%) than in urban areas (31.5%) and is overall lower in Monrovia than in the rest of the country. Transfers and remittances have a low impact on poverty in Liberia: for the poorest and most vulnerable households, transfers are neither widely prevalent nor high enough value to address the needs of the poor,” the report noted.
However, in the midst of abject poverty, Liberians have to cope all-time high inflation largely caused by sharp drop in foreign exchange supply (30%- following the drop in the exports and donor inflows), in the face of relatively rigid demand for U.S. dollars and rising global oil prices. This year, the inflation rate rose from 10.8% (June 2017) to 24% as recorded in June 2018.
The Liberian economy has suffered multiple shocks over the last few years. The drawdown of the United Nations Mission in Liberia (UNMIL), Ebola Virus Disease outbreak and the collapse of prices of key export commodities coupled with the political transition all compounded the situation.
The gross domestic product (GDP) recovered at an estimated rate of 2.5% in 2017. Hopes are that it may rise further by 3.0% this 2018 as a result of rising prices of gold and iron ore on the international market.
“The inflationary impact of Liberian Dollars (LD) depreciation is magnified in the context of highly dollarized Liberian economy. The resultant rise in the cost of living and limited employment opportunities continue to undermine the welfare of Liberians,” the report said.
The World Bank report stated that there are positive expectations of the economic outlook in the medium term irrespective of substantial downside risks. The risks include further shrinking of commodity prices, incomplete structural and institutional reforms and risky borrowing.
“The new Administration is expected to mitigate these risks by embarking on policy reforms that will promote economic diversification, improve the investment climate, promote domestic revenue mobilization and to ensure prudent borrowing strategy,” the cautioned noted.
President George Manneh Weah in his address to the UN General Assembly earlier this month said his government’s Pro-Poor Agenda for Prosperity and Development will give priority to poverty alleviation. He said his government would be more concerned with reducing marginalization of the most vulnerable, create atmosphere for middle and upper income Liberians to prosper and contribute to the country’s development.
The Weah-led administration has, however, come under intense criticism for doing too little to revamp the economy as corruption and inflation continue to abound.
Meanwhile, the Center for Policy Action and Research (CePAR) has called on the government immediately devise an Economic Recovery Plan to resuscitate the faltering economy.
According to CePAR, the report by the World Bank draws international attention to the overall economic malaise of the country.
“This communicates a budget shortfall of over US$112M representing the largest budget shortfall since the foundation of the country. CePAR further notes that even though most of the expenses are authorized budgetary payments, some were avoidable especially as it regards to the ballooning size of the wage bill,” CePAR noted in a release.
The research and policy group in May this year alarmed over the size of the government’s compensation in May 2018 and warned that it could lead to the size of the pending shortfall.
“Another key point also highlighted is Headline inflation. This is an inflation derived by calculating the high rise in the prices of food, fuel and other basic commodities. Headline inflation, the report stated has reached an all-time high of 24%! This again is the largest increase in a year,” CePAR stated in a release.
The policy and research group further recommended that the “Liberian Government needs to close the revenue gap with non-debt creating inflows by cutting back on expenditures. It must be emphasized that there can be no credible cut without touching the payroll.
“The public sector wage bill is huge and lacks strategic resource allocation of labor. No meaningful development plan can be supplanted in Liberia without serious austerity measures.”


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