The Liberian economy is showing a positive outlook owing to sound fiscal policies being instituted by the George Weah administration, the African Development Bank (AfDB) has indicated in its latest projection for the country for 2018 thru 2020.
The government has been embarking on policy reforms geared towards promoting economic diversification, improving the investment climate, and promoting domestic revenue mobilization championed by the Liberia Revenue Authority.
In an economic outlook for Liberia, the bank said real Gross Domestic Product (GDP) growth of Liberia rebounded to an estimated 3.2 percent in 2018, from 2.5 percent in 2017, driven principally by mining and manufacturing, agriculture, forestry, and fishing that dominate the economy, contributing 70.3 percent of GDP in 2017.
AfDB described Liberia’s economic outlook as positive, and further stated that real GDP growth would increase to 4.7 percent in 2019 and 4.8 percent in 2020, underpinned by modest growth in agriculture, fisheries, and services.
“Inflation is expected to decrease further to 10.5 percent in 2019 and 9.5 percent in 2020 given a stable exchange rate, prudent monetary and fiscal policies, and a modest increase in domestic food production.
“The current account deficit is expected to remain slightly above 22 percent in both 2019 and 2020. The positive outlook could be overshadowed by the risk of debt distress, which could go from moderate to high if borrowing to meet large public investment needs increases while the output of key export sectors declines,” the bank said.
Pinpointing the microfinance performance, AfDB noted that a moderate increase in revenues, combined with a decrease in spending, reduced the fiscal deficit to 3.9 percent in 2018 from 7.9 percent of GDP in 2017, and that the country remains at a moderate risk of debt distress.
Total public debt was 41.3 percent of GDP in 2017, about 69.6 percent of which (or 29 percent of GDP) was external, it said, adding: “The Liberian dollar depreciated by 24.5 percent against the United States dollar in 2017 and by 27 percent by the end of June 2018. The depreciation was caused by deteriorating terms of trade and high demand for foreign exchange for imports.”
Inflation was an estimated 11.7 percent in 2018, slightly lower than in 2017, due partly to high dollarization which is approximately 70 percent of broad money, it said.
According to the bank, the current account deficit improved marginally to 22.4 percent in 2018 from 22.7 percent in 2017 as exports increased due to gold production and a modest recovery of commodity prices, while “gross foreign reserves increased slightly from 3.0 months of imports in 2017 to 3.6 months at the end of June 2018.”
However, AfDB pointed out that factors that may affect the economic outlook as a decline in aid inflows after the 2014-2016 Ebola crises and the drawdown in 2018 of the United Nations peacekeeping mission in Liberia, and the shortage of foreign exchange could constrain the highly dollarized banking sector.
In its analysis, the bank also stated that the dependence on exports of primary commodities: gold and iron ore; and imports of food and fuel make it highly vulnerable to external shocks, underlining that demand for Liberia’s commodity exports could be reduced by a slowdown in the advanced economies or in China, due to recent trade tensions.
In addition, the bank said that the infrastructure deficit constrains development, particularly, roads, energy, and water and sanitation, using the country has an estimated 12,000 kilometers of roads, only 7 percent of which is paved.
Interestingly, AfBD has alluded to the Liberian government’s undertaking various structural reforms toward accelerated, inclusive, and sustainable development, mentioning that expanding and improving the road network are priorities, including a plan to pave at least 650 kilometers of primary roads in the next 5 years.
Also, it admitted that increasing access to affordable energy and water and sanitation is equally at the top of the agenda as infrastructure development, based on establishing special economic zones, is essential for industrialization, while developing the skills of the youthful population will boost their employment.