16 July 2018

Liberia: Independent Economist Critiques U.S.$1 Billion Loan

Photo: Travis Lupic
West Point, Monrovia.

Monrovia — An economics professor at the University of Liberia has urged the Government of Liberia to institute measures to curb illicit financial flow and reduce tariffs on goods and services if it would make any gain on the combined (nearly) US$1 billion loan deal. He also said the deals should not have been sealed. The Legislature, in June, ratified both US$536 million loan with a Singaporean firm ETON Financial Private Limited and US$420 million with Burkinabe company, EBOMAF. It also passed resolution urging President George Weah to get more of such loans.

The combined loan has attracted a barrage of criticisms from the media, opposition and international partners including the International Monetary Fund (IMF).

"In the first place, the method about taking loan now is wrong," said Dr. George Gould, a graduate from the prestigious London School of Economics, in an interview with FrontPage Africa. "You should not borrow external loan. You should borrow internal loan because of exchange rate issues."

Dr. Gould's assertion rings a bell at a time the Liberian currency has reached its deepest ever ebb, with the exchange rate of a United States Dollar and a Liberia Dollar one to 163 (as of press time). And in the last month or so the rate has been on an increase between one and three Liberian Dollars a day. There have been calls for different corners for a sole use of the United States Currency, and printing of new Liberian banknotes.

"Over a period of time, if you borrow from outside of your economy, the value of your currency will depreciate and the value of the debt will increase and you will never be able to pay," Dr. Gould said. "The advisable thing that emerging economies do they establish capital markets and then they borrow from those markets in their own currency and the value of the debt is constant and is sustainable over a long period of time," he added.

The Liberian economy has been in decline since 2014, coinciding with a deadly Ebola outbreak that killed nearly 5,000 people up to 2016. Prices of chief Liberian exports--iron ore and rubber-- have fallen on the world market. A once burgeoning oil and gas sector is now in shambles. Workers have been laid off in main sectors of the economy. Inflation is on the rise, reaching an all-time high of 21.40 in April this year.

President Weah is expected to address the nation on Monday on the state of the economy.

Dr. Gould said such outcome was the result of the political leaderships over the years that have ignored economic best practices and policies.

"Politicians want to be seen dedicating projects and cutting ribbons, but then after that what happens to the welfare of people," he said. "People's welfare begins to go down and then we build a big road but we don't have food to eat."

'Empty basket'

The Weah administration intends to use the loans to finance road projects along the coast towards the Southeast and other parts of the country but Dr. Gould said the Liberian scenario proved that roads are not sufficient for economic recovery.

"In the Southeast, the group of people there are layback people they are not farmers. Even where we call people farmers--in Lofa [Bong and Nimba]--the breadbasket, that basket is empty. They don't produce bread; there's no bread in it.

"We have paved roads from here to Bo-Waterside, we have paved from here to Ganta, we have paved roads from here to Buchanan. Do we have farms along those roads?" Dr. Gould asked rhetorically, adding, "If we want to go into agriculture and think roads are an issue, then let's farms near the roads [that we already have] so that it will be sustained. If we want to borrow money and create more roads and we are not making use of the ones we're having not, then we are increasing our debt."

The combined loan, however, can be sustained if the right policies are adopted, Dr. Gould insists. He recommended that the government curbs illicit financial flow by reducing tariffs to enhance revenue generation.

"If we can reverse that, in a shorter period of time, we will be able to raise the needed revenue that we need without [further] borrowing," he said. "That will help us to be able to sustain the loan shock that will come over a period of time," he added, referencing his book "Capital Flight from Sub-Saharan Africa: Extent and Mitigation", which finds that from 2003 to 2015, Liberia lost about US$1 billion in illicit financial flow.

"Presently, we are not even looking in that direction," he lamented. "Our tariffs are extremely high. Research has shown that high tariffs will reduce compliance. Low tariff will induce compliance. We need to see how we can strengthen our current revenue base and expand. If you don't make some economic decisions and continue with our political trend, loan will be disastrous for us somewhere down the road."

Report by James Harding Giahyue

Liberia

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