— Forecasts High Poverty Level in the Coming Year
IPNEWS-Monrovia: A World Bank Report on Liberia released on Friday, November 18, 2021 says extreme poverty remains high in Liberia despite inflation and economic activities in the Country.
In a report on the Liberia Economic Update, the World Bank called on the government to reduce the high level of recurrent spending and strengthen domestic revenue mobilization to generate savings for public investment financing.
“The recent efforts to reduce duty waivers and the successful implementation of the pay and payroll reform are steps in the right direction and need to be complemented by actions to improve the efficiency in the consumption of goods and services by the Government,” said Mamadou Ndione, Senior Country Economist and main author of the report.
The administration of President George Weah may have managed to stabilize the economy after a turbulent start, but the country’s high level of recurrent expenditure has become a point of concern for officials at the World Bank.
The Bank expressed its concern just a few days after the Minister of Finance and Development Planning, Samuel Tweah submitted to the Legislature a budget envelope of US$785,587,340.00, to fund the ambitious development agenda of President George Weah.
However, a massive chunk of the budget goes into servicing public debts, contractual obligations; and clearance of arrears.
The report added that despite the government achieving success in a positive turnaround in macroeconomic fundamentals, fiscal gains need to create enough fiscal space to finance the country’s massive investment needs in physical infrastructure.
The World Bank report mirrors information captured in the Ministry of Finance budget circular document that the country lacks enough funds to create the fiscal space needed to support a resilient recovery since policy options for increasing fiscal space are based on debt sustainability, external assistance in debt relief, debt service suspension, debt restructuring, and concessional loans.
The ministry also noted that, at a time when the country is faced with a falling growth rate and being classified in the category of a moderate rate of debt distress, the situation has inhibited the government’s ability to borrow to finance projects.
At current, the government account deficit, according to the Ministry of Finance, is projected to widen to 22.3 percent of GDP in 2021 and further to 22.8 percent of GDP in 2022, while the country’s total debt stock as of the end of February 2020 stands at US$1.47 billion, of which domestic debts account for US$604.4 million.
External debt stock accounts for US$861.8 million, with multilateral institutions accounting for US$748.3 million, and bilateral sources, US$113.5 million. Of the domestic debts, the Government of Liberia owes the Central Bank of Liberia US$487.5 million; commercial banks, US$65.2 million; other institutions, US$51.5 million; and claims, US$0.2 million.
Meanwhile, the World Bank in its report has called on the government of Liberia to invest in people and institutions to create an educated, skilled, and healthy labor force, in both the public and private sectors, as a means of protecting the economy.
The Bank noted such investment is needed to also safeguard the country’s vulnerable population against repeated exogenous shocks. The report further said that the drop in world oil prices in 2020 allowed some easing in Liberian fuel prices, a frequent driver of inflationary pressures, although the decline was moderated by the introduction of an excise tax early in the year.
Economic growth, according to the report, is expected to recover to 3.6 percent in 2021, before rising gradually to an average of 5.2 percent over the years 2022 to 2025 and will be driven by the expected recovery in the mining sector, underpinned by the recent uptick in commodity prices.
“A major challenge to the country at this crucial time is that those debts previously contracted on concessional terms are coming due now,” disclosed Samora Wolokolie, Deputy Minister for Fiscal Affairs at the Ministry of Finance in a speech at the Ministry of Information Cultural Affairs and Tourism in August. “Thus, with falling growth rate and revenue, rising expenditures, and widening current account and fiscal deficits, the country risks defaulting on its debt service obligations.”
However, the macroeconomic outlook for the fiscal year 2022, made available by the Ministry of Finance, assumes that high levels of uncertainty around the evolution of the COVID-19 and its likely impact on external demand and global and domestic supply chains; and unaddressed vulnerabilities in the financial sector could undermine economic recovery, increase poverty, and weaken Liberia’s fiscal and external balances.
Dr. Khwima Nthara, World Bank Country Manager for Liberia added that the government should be commended for making tough policy choices that have resulted in this positive turnaround in macroeconomic fundamentals, especially under a challenging COVID-19 environment.
“The Government must be commended for making tough policy choices that have resulted in this positive turnaround in macroeconomic fundamentals, especially under a challenging COVID-19 environment,” said Dr. Nthara said. “The focus now should be on complementing the improved macroeconomic environment with critical structural and governance reforms that will help boost domestic and foreign private investment to create more jobs,” he added.
The latest World Bank report observes that the Government of Liberia spends more money than the average in Sub-Saharan Africa, including countries with similar gross national income per capital such as the Central African Republic, Madagascar, Mali, and Guinea Bissau. The report also notes that the Liberian government makes no saving and contributes very little, if any at all, to financing public investment, thus painting a grim picture of the country’s fiscal management policy.
The observations are contained in the Second Edition of the World Bank’s Economic Update on Liberia, under the theme, “Finding Fiscal Space” released Friday, November 18, 2021, in Monrovia.
Gross National Income (GNI) per capita, previously called Gross National Product per capita is the dollar value of a country’s final income earned in the domestic economy by nonresidents.
The report stresses the need for government to create enough fiscal space to finance the country’s massive investment needs in physical infrastructure specifically energy, roads, rails, ports, and airports, including investing in its people and institutions to create an educated, skilled, and healthy labor force in both the public and private sectors, as well as protect its economy and vulnerable population against repeated exogenous shocks.
The World Bank Country Director for Liberia, Sierra Leone and Ghana, Pierre Laporte; the Bank’s Country Manager for Liberia Dr. Khwima Nthara, Liberia’s Minister of Finance and Development planning D. Samuel Tweah, and the Executive Governor of the Central Bank of Liberia J. Aloysius Tarlue, among others attended the launch of the report.
Moderating panel discussion subsequently after the launch, World Bank Country Manager for Liberia Dr. Nthara calls on the Government of Liberia to halt wasteful spending and to align the national budget with the government roadmap for development, the Pro-Poor Agenda for Development and Prosperity (PAPD).
Liberia is said to have the second-highest proportion of poor people in West Africa after Guinea Bissau, the report says, but notes that poverty is expected to decline in 2022 if recovery is sustained.
However, it suggests four ways in which Fiscal Space could be generated including raising additional revenues thru taxation or by strengthening tax administration; reducing expenditures in order to make room for more desirable ones; borrowing from domestic or external sources, and the Central Bank printing money to lend to the government.
Finance Minister Tweah concedes during the panel discussion that Liberia is still not out of the wood, stressing this has to do with the slope reducing rather than shooting upward, saying “As a country, we are very good at physical construction but the challenge is invincible.”
Tweah continues that government would have to double down on domestic savings.
On the question of liquidity shortage in the economy which has been experienced in the past two years, CBL Executive Governor Tarlue assures that with the printing of new families of Liberian banknotes going in circulation by December, the shortage would be addressed, specifically noting that United States Government embarrassed Liberia last year when it warned Americans coming here to bring along about US$10,000 because of severe money shortage in the economy.
The report also stresses that government should first and foremost reduce a very high level of recurrent spending and strengthen domestic revenue mobilization to generate savings for public investment financing while pointing that between 2012 and 2020, government operating expenses exceeded the domestic revenue is collected by 4 percent of GDP. “This means that the external resources mobilized in the period financed a significant part of the government’s operating expenditure instead of financing public investment in infrastructure”, it explains.
Meanwhile, World Bank Liberia Economist Gweh Gaye Tarwo during the launch noted that food insecurity remains key attention by the government.
“There is a serious food insecurity in Liberia at the moment about 81% were worried about finding food in the country based on the survey conducted in Liberia” Mr. Tarwo noted.
On his part, Finance and Development Planning Minister Samuel Tweah commended the World Bank for the report and promised to continue to work with the Work Bank and improve government activities in all sectors.
