According to the December 21, 2017’s edition of FrontPage Africa (https://frontpageafricaonline.com/business/central-bank-of-liberia-over-us-449m-remitted-out-of-liberia/) the former governor of the Central Bank of Liberia, Mr. Milton Weeks stated at a press conference that despite the challenges in Liberia, the economy was on a “path of a rebound.” Additionally, the former CBL governor indicated, “The CBL will continue its periodic intervention in the Forex market on a regular basis to enhance market predictability and help to meet the Forex demand of importers…” Perhaps the Liberian people, particularly the Legislators, should be curious in having the former governor explain what intervention policies the CBL implemented. An inquiry into the CBL policies will ensure the new CBL governor doesn’t engage or practice the same failed strategies.
Albeit, solving the depreciating Liberian Dollar (LD) requires solving several structural issues in the economy along with addressing external interventions with Liberia’s trading partners. In this short blog, I’m going to offer a few problem areas that need immediate solutions without focusing on how Liberia’s fiscal and monetary policy advisors should address them. Our solutions will be offered via a direct policy framework which you can obtain by contacting research analysts over at the National Economic Development Corporation of Liberia – https://nedcliberia.org/ .
- Improve Liberia’s trade balance – how do you improve this critical area when the country lacks credible data on its current trade balance? Again, the lack of trustworthy and sound statistics from the Central Bank of Liberia makes solving the depreciating LD a major challenge.
Since 2011, the Central Bank of Liberia (CBL) has failed to publish its “Balance of Payment Reports.” According to the CBL’s website, https://www.cbl.org.lr/2content.php?sub=159&related=29&third=159&pg=sp&pt=Balance%20of%20Payment%20Reports the last balance of payment report was submitted in 2011.
While the report was not considered of critical importance during a period of constrained fiscal and monetary stratagems, today, it is of vital importance because the country’s leadership team needs a full picture of the balance of payments to develop a comprehensive response to rising prices and the underlying issues in the economy.
If you have been following my research and blogs, you will know that I am highly critical of the fact that Liberia’s economic data, as presented by the CBL, the World Bank and the IMF are all based on “estimates” with a focus on Monrovia. Estimates which do not reflect the realities – for example, it is reported that Liberia’s unemployment rate is around 4% – which is deemed one of the best unemployment rates in West Africa. While I’m not going to get into the semantics of how this figure is distorted or why statisticians can bend numbers to make them facts, it’s simply meant to show the need to improve and explain the data collection and dissemination process.
The Player is Now the Referee in the Same Game
As it stands, LISGIS is unable to collect economic data – in fact, under the previous administration, LISGIS turned the process over to the Ministry of Finance and Planning who in turn asked the CBL to perform this function. This transfer of responsibilities means the CBL has been acting as a “Player and Referee” in the same game. Is it possible the CBL could rig the game? Well, six months ago, the former CBL governor indicated the economy was improving.
- Cut the projected budget deficit – the government will need to reorganize the 2018-2019 budget by reducing its payroll and performing a drastic cut on recurrent expenditures. An expansion payroll where employees are being paid in LD will not only hurt the government’s chances in reducing inflation, but it will hurt the government’s ability to improve other key sectors including education and healthcare.
- Reduce the government’s debt – high debt payment in U.S. dollars will only exacerbate the problem.
- Develop Liberia’s capital market – (see my blog on improving Liberia’s capital market)
- Hope the U.S. dollar depreciates – a strong dollar is always bad news for underdeveloped countries like Liberia with high debt burdens that are denominated in dollars.
- Personal remittances – the fall in personal remittances to Liberia should be a concern for all Liberians. So the question becomes, how do you increase personal remittances to Liberia, particularly the transfer of U.S. dollars? Perhaps there needs to be a high-level review of Liberia’s dual citizenship laws.
Persistent inflation is one of those areas in macroeconomics that tests government abilities to handle a crisis – especially in countries like Liberia with heavily extractive industries and huge balance-of-payments challenges. Policy makers need to induce a diversified economy and boost stronger exports as part of its strategy to untie the constraints on economic growth. Still, you can’t help but look at the profit-making or revenue generation of Seigniorage. The Government of Liberia will need to fix the structural issues to solve inflation.