It seems much of Liberia’s economic challenges for the last 20 years or so got concentrated and hardened at a time the country’s second postwar democratically elected government took office. This is particularly occasioned by the fact that international empathy expressed in mammoth international aid enjoyed by the erstwhile administration soon started to rapidly recede into oblivion as it was taking off. Concerned about the situation, the International Money Fund (IMF) has been making constructive moves, engaging the current political administration to reset the economy and mitigate the impacts that it leaves on the population and the ability of Government to deliver essential services to the people. Following nearly two weeks of visit which witnessed intense discussions with stakeholders, mainly the government economists, the IMF this week concluded a tour of duty but not without reaching concrete agreements that promise better days for the Liberian economy. The Analyst reports.
The IMF on Monday, June 24, 2019 wrapped up its activities after almost two weeks of intensive engagements with various ministries and agencies of government. The Mission’s led by Mika Saito arrived in the country on 11 June to discuss possible financial support under the Extended Credit Facility (ECF).
During the press conference on Monday, the Mission expressed its support for the government’s objectives of restoring macroeconomic balance in the near term, addressing weaknesses in various public sector institutions, improving the business climate and putting the country on a fiscally sustainable and inclusive growth path.
During its interactions with officials of government, the Mission noted that the series of external shocks including the fall in key commodity prices, the lingering effects of Ebola and the rapid depreciation of the Liberian dollar and the rising inflation were all factors that gave rise to the current state of economic affairs.
Economists have noted that the Liberian economy since 2006 was growing under a false macroeconomic premise. The indicators of macroeconomic growth which include the provision of jobs through investment in agriculture and other natural endowments were missing. The rate of unemployment, the exchange rate as well as inflation were all shadowy growth. The more than US$329 million inflow of foreign exchange by UNMIL, the significant budgetary support the previous government received from friendly nations and donor partners, were all counted as growth even in the midst of unemployment.
The Mission noted that in order to fund an efficient government expenditure program, the government will require additional revenue measures and reforms to reallocate expenditure. Reducing the size of the public sector wage bill which currently accounts for almost 65% of total budget expenditure could be the first start for achieving desired results.
The Mission expressed its support the CBL’s intention to achieve greater alignment of interest rates on its newly introduced monetary policy instruments. Achieving this monetary policy should be buttressed by fiscal program as well as the elimination of additional government borrowing from the CBL. The President, during his address to the nation in late May, noted that going forward, his government will no longer borrow from the Central Bank.
For his part, Finance and Development Planning Minister, Samuel Tweah thanked the IMF for their mission to Liberia and expressed optimism that the country will follow through with an IMF-supported program in the coming years. Minister Tweah noted that the government has already commenced sets of fiscal reforms which amongst other things demand a credible budget. “The budget has not been submitted because we have embarked on a very significant revolutionary macroeconomic exercise- wage bill harmonization”.
The issue of wage bill harmonization which is termed as salary cuts in some quarters of the country has become the fiercest debate. According to Minister Tweah, the wage harmonization will create equity in the work place. “In previous times, people were paid at a discretionary rate. For example, an Official could determine two different salaries structure for two persons that did the same work. It is unfair to see a director in one agency of government making US$1,500.00 and another director at another ministry making a paltry US$300.00.
The wage harmonization process which started more than six weeks ago will see a reduction in the wage bill from US$330m to US$297m. Interestingly, Minister Tweah noted that the wage harmonization will not affect few institutions to include the Ministries of Health and Education. Conversely, while other ministries and agencies are taking the hit, the Liberia National Police and other security apparatus will see a slight increase in the salaries.
The new budget will see spending more money on servicing debts which was mainly incurred by the previous government. Debt payment moved from US$30m in 2018 to US$61m in the 2019/2020 budget. The stock of domestic debts also stands at US435m. The Minister noted that efforts are being made towards paying vendors that supplied goods to the government.
These monetary and fiscal measures are a critical challenge to an economy that is already experiencing a down turn including a depreciation of the Liberian dollar as well as the rising rate of inflation which has lower the purchasing power of the poor and vulnerable. Rebounding, rebranding and rebalancing the economy will require such austerity actions, but will set the economy on a truth path-one that is not based on budgetary support, but rather jobs creation through a business-friendly climate that give rise to private sector investment.