17 January 2014

Liberia: Economic Downturn Might Continue - Observes Analyst

The International Monetary Fund (IMF) had projected a slowing of the Liberian Economy in 2014 ,but did not capture the wave of (financial) monetary decline seen early 2013 and through the year.

Despite the government much heralded economic stability theory, worsening exchange rate and lack of jobs have provided limited accuse for the downward spiral.

But on the other hand, it must be stressed that the government to its credits have put in place a number of sound fiscal policies and macro-economic interventions to address the structural condition in the economy, but the results of these efforts are yet to have a cross multiplier effect.

The Heritage have been researching and speaking with analysts and experts on the subject to determine a thorough analysis of the situation and the right policy steps to address the downturn that is threatening to reverse gains the country has made in the short term.

Speaking on condition of anonymity, the Heritage spoke with a leading professor at Liberia's premiere University, the University of Liberia, an Economic observer and a retired banker and he made the following observations.

"While the government seems to have made many gains in repositioning our fiscal condition and meeting most of the benchmarks set by international organizations, it seems it doesn't matter the policy direction or choices, the ordinary people just want food on their tables and they want it now. They tend to leave the strategic thinking to erudite policymakers and implementers and look forward for ultimate outcomes which translate to jobs and income."

He said it was confusing and bewildering that even though while the government was making the right policy choices "the economy continues to show signs of being worse off than before. In such case it doesn't matter whether it will get better in the future or not. Most ordinary people are rightly concern about now (today) because they have gotten too many promises about things getting better tomorrow and that tomorrow never seems to come".

"What compounds the problem even more is that when the explanation given for the situation at hand appears to be making fools of the people: when economists read the economic data and report that the fundamentals of the economy are strong and that things are heading in the right direction or when the data shows that things have never been better while the harsh reality on the ground shows that people are suffering and feeling the pinch," he intimated.

He said it was time that the government did a reality check on its theory, as there could be alternative argument to explain why things are supposedly getting worse in reality when they seem to be looking good on paper.

"If the economic data are not supported by the reality on the ground, then some alternative explanation might be in place. May be the whole story is not being told and so people are finding it difficult to relate to message."

When asked what could possibly be some of the alternative explanation to what he believes is happening in the Liberian economy, he said "let me first point out that in some strange way, I think both the ordinary people and the Government are right in their assertions that they experiencing difficulty in making ends meet and that the economy is growing and heading in the right direction respectively."

"What is missing in the argument so far is that the Government is not explaining to the ordinary people some of recent developments in the economy that could have made things worse than they currently are if it were not for the interventions of the government in terms of policies and interventions.

Let's look some of the major developments in the economy of late.

UNMIL drawdown: "As we all know, UNMIL has been a major part of the economic activities in the Liberia since 2003. One doesn't have to be an economist to understand the critical role that UNMIL has been playing in economy.

With more than 15,000 troops on the ground coupled with the huge logistical demand in supporting those troops, it is clear, even to the most ordinary person, that UNMIL did bring into the economy a lot of cash on a monthly basis to support its activities.

Now that UNMIL has started to reduce its force size and therefore its activities, there is no doubt that the amount of US dollars that UNMIL brought into the country has significantly reduced.

Because spending from this major source has reduced, the economy is bound to experience some down turn unless there is corresponding injection from another source to compensate for this reduction in the economy.

It is estimated that at the peak of its activities, no less than US$25 million was spent on a monthly basis to support its activities. Today, we are not even sure that UNMIL is spending more than US$10 million a month.

This is net reduction of US$15 million per month. For an economy the size of Liberia, US$15 million per month spending is a huge ($180 million per year which is nearly 9% of GDP). This is approximately the size of the Government of Liberia monthly payroll. Imagine such an amount disappearing from the economy and then think about the economic consequences."

Regarding the UNMIL draw down, "I am not sure we have seen the bottom of the economic down side yet. UNMIL is expected to continue to draw down and this may begin to hit closer to home when the civilian side, including the Liberian staff, begins the draw down as well.

This will not only reduce spending in the economy, it will create unemployment for the 100's of Liberians who are employed with UNMIL."

NGO Slow down: "The last few years have seen NGO slow down their activities in Liberia. Two primary reasons are responsible: (1) economic situation of the donor country have not been favorable and (2) conditions in Liberia have been improving thereby necessitating a reduction in activities.

With more than 10 years of peace and stability, it is reasonable for anyone to believe that there need for emergency and relief are minimal and therefore justifies a reduction in the activities of many NGOs who are already experiencing economic slowdowns in their donor countries.

Again, even the non-economist knows that NGOs have played a major role in the economy of our country over the last few years and therefore a slow down or reduction in their activities is bound to have adverse economic consequences. NGOs had been the major employers in the economy, especially in the rural parts of the country.

In fact, they tended to higher wages than the Government and private companies. Now that they have slow down their activities, many people who lost disposal income and therefore cannot buy goods and services. Additionally, the resources to buy supplies used by these NGOs have also disappeared."

Slowdown in Forestry activities: "With the slowdown in the activities of logging companies due the PUP saga, the economy no doubts suffer.

The merits of the moratorium, notwithstanding, the economic consequences are real. Logging companies operating PUPs were spending approximately US$3 million per month on wages, fuels, the other operating cost excluding taxes and fee paid to the Government and Port Authority. Again, when you consider the size of the Liberian economy, losing US$3 million per month is a big deal and should not be ignored."

The observer pointed out "Is it reasonable to believe the economy is doing well because it could have been worse off? Sometimes it makes sense to measure success by the depth from which we have come and not only the height we have gained.

If the Government was not taking certain steps to manage the fallouts from these activities over which it has no control, the situation could have been worse than it is. But because of certain macro-economic policies and interventions, the public is not feeling the full effect of these major developments.

With the information provided above, the Heritage conducted a sampling of views in and around the Monrovia area to ask ordinary Liberians their views on the subject. James Davis, a fabric retailer on Benson Street said the government handling of the economy has been poor and blamed the Ministry of Finance for not communicating information about economic performance consistently.

Clara Williams, a banker and development specialist, said "there is less money in the economy than before and a lot of transactions we do with UNMIL and other business people have declined since 2013. UNMIL soldiers were enchasing checks every day and where contributing to heavy cash flow in our bank'".

James Quaye works for a local NGO and said, "in my opinion, it is not that the government is not doing much or has done something wrong, I think the downturn is also felt in other places across Africa, the problem with Liberia is we didn't even experience the global financial crisis, so at this time, the government has little excuse for the what's happening.

But we should have expected this, with the decline in aid revenue, UNMIL, and NGOs etc. On the other hand, the Central Bank must do a better job and watch the exchange rate issue very keenly."

"So, it seems the decline could even get worse if the government fails to move quickly to find other sources of cash flow into the economy to compensate for the reduction in spending mentioned above.

Additionally, the Ministry of Finance needs to do more in communicating the whole picture or could suffer image problem due to high expectation created by ordinary people who could otherwise understand if these explanations are made to them timely."

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