In the wake of the current economic conundrum facing the country, occasioned by the acute shortage of Liberian dollar banknotes on the market amidst a galloping inflation, Liberia’s former Finance Minister Amara M. Konneh has offered some salient professional consul to the CDC-led government, against the background of recent calls from the ruling party’s echelon for their financial and fiscal policy makers to seek the assistance of qualified Liberians to help fix the ramshackle economy.
Taking to social media over the weekend, Mr. Amara Konneh who now works as a senior advisor on Partnerships and Regional Integration covering Africa for the World Bank, posted what he referred to as his “Sunday Reading- Some Suggestions for Fixing Liberia’s Financial Crisis”, a six-point solution intended to help the country’s financial managers, especially the entire economic management team and the Central Bank Governor, tackle the tight economic squeeze the nation is currently enduring.
Know the amount of LD in circulation
Mr. Konneh, in his advisement to government, identified the lack of knowledge about the amount of local currency in circulation as the first real problem facing the economy.
“Here’s why this matters. The money supply, in Liberia’s unique case, is the total amount of LD and USD inside and outside banks. Our continual challenge is to ensure that the supply of money is equal to our demand for it – what they call equilibrium. When you’re at the bank and you want your LD but they’re telling you ‘no money’, that means the LD supply is low. This may explain why the LD/USD exchange rate has been dropping of late. When there’s too much LD circulating, the rate goes up.
“When money is circulating at equilibrium, we don’t have to waste time chasing it. It’s readily available, so the economy tends to accelerate because businesses have easy access to financing. If the money supply is above equilibrium, inflation kicks in. The LD loses its value and so prices go up. The opposite is true if LD is more scarce. But how can we know and control where we are, if we are not sure how much currency is actually out there?” Mr. Konneh stated.
Stop Fixation on exchange rate
The second advise Mr. Konneh offered the CDC-led government is to stop the fixation on the exchange rate, which according the former Finance Minister, is only a symptom of the country’s economic woes.
“This is for GOL and the Liberian people: the FX rate is not our real problem. It is a symptom. If you have cancer and all you do is take pain killers, are you saving your problem? No need for me to elaborate on this one. My former colleague Alieu Fuad Nyei has already published a masterpiece on this subject. You can find it on his Facebook page. Alieu was one of our brightest stars at MFDP. He lives in Liberia. Boakai Jaleiba and many others who I can’t name all in here have also offered sound policy suggestions – all in good faith. It’s time we all expand the basket of voices we listen to, and fill it with real thought leaders who offer solutions, not just partisan rhetoric,” Mr. Konneh proffered.
Digitize the Economy
According to Mr. Konneh, the George Weah-led government needs not to reinvent the wheel, but build on progress made by the former Unity Party government in pursuing digitization of all government financial transactions, instead of issuing paper checks in 2021, which accordingly undermines transparency.
“We made major strides, up to 2017, to develop modern payment systems. By the end of UP’s second term, LRA was accepting online tax payments, and businesses were accepting payments with debit cards and mobile money. That trend has only grown, especially with the cash shortage. What has been slow is the MFDP’s digitization of public transactions including a salary payments of about LD$4.9 billion every month. In 2021, we’re still using paper checks, which are expensive to import, and a manual disbursement process. You know why we haven’t made progress? Because digital payment of salaries forces transparency. Trust me when I tell you that they nearly killed a consultant we brought in 2013 through USAID’s support to digitize the Ministry of Education’s payroll. The poor guy was so traumatized by this experience that he opted out of the contract and left the country. Now that the office of the Comptroller and Accountant General has been elevated to a department within MFDP, let’s see what they do about that,” Amara Konneh disclosed.
The former finance minister furthered that digitization doesn’t end with the Ministry of Finance and Development Planning, but other institutions with high revenue generation capacities.
“This doesn’t end with MFDP, though. Digitization requires GOL completing the expansion of the electrical grid across the country and working with LTA and GSM companies to affordably expand network and fiber optic cable coverage. We spent nearly a half of a billion dollars in restoring electricity generation to above pre-war levels and expanded it into rural Liberia for the first time through the cross-border and rural electrification programs. We also invested $25 million in landing a high-speed Internet cable on the beaches behind the BTC Barracks in Monrovia from Europe, under the Atlantic Ocean. Now, let’s expand that too. That way, rural and urban dwellers can use mobile money to transact business from anywhere. Guess what happens when you do that: nobody complains about cash anymore because they don’t need it. This is not a pipe dream. It’s already happening for those who have access to this technology on their bonanza and smart phones. Let’s make sure they work for everyone,” Mr. Konneh posited.
Develop the capital market
Continuing, Mr. Konneh surprisingly agreed with the current Finance Minister Samuel Tweah that the Liberian people don’t have confidence in the banking system, but says the lack of confidence from customers is caused by the same government.
“He’s (Tweah) also right about that. Historically (and globally) confidence in banks directly depends on confidence in governments. So I have to lay that wreath at the casket of GOL’s integrity. This government is heavily indebted to the commercial banks and is doing nothing to repay them. Part of that debt is owed in Treasury Bills (T-Bills) which we introduced as a first step towards developing a capital market in Liberia. You need to expand it! T-Bills are certificates government gives to banks in exchange for money. They are short term IOUs or an informal document acknowledging debt. They say “give GOL money today and we’ll pay you back in one year (or less) with interest. We started issuing T-Bills in 2012 when I was Finance Minister and consistently honored them on time. This administration has not followed suit. Thankfully, the CBL Bills (same arrangement) are repaid on time. But GOL’s poor credit record undermines the CBL’s credibility in the market for public debt instruments.
“Why does this matter? Because the first thing we use T- Bills and CBL Bills for is monetary policy. When we want to reduce money in circulation, we issue Bills and just hold the LD we get from the market in the vaults at CBL, for a year or less. We call it sterilization. It drives down money supply and increases the LD’s value. See #1 above. Sources tell me that the GOL has stopped issuing T-Bills, so only CBL Bills are available. Commercial banks are the biggest investors, but they also help their depositors participate. How does the CBL make it attractive? By offering competitive interest rates, higher than what banks offer for deposits. It worked for us!
“While public interest in these instruments is growing, most Liberians are wary of putting their cash into a system that won’t give it back when they need it. Between liquidity squeezes and GOL’s debt management problems, it’s just too risky. The government of Liberia cannot afford to keep kicking this problem down the road. It needs to expand the investor base to include ordinary people with the capacity and willingness to invest. The more Liberians trust GOL and buy its debt instruments, the more LD comes into the banking system. Then we’ll have a more accurate count of how much money we have in the system. This is why the mop-up policy and the additional LD$4 billion the CBL printed didn’t solve the problem,” Amara Konneh stated.
CBL Governor Tarlue must step up
According to Mr. Amara Konneh, the biggest causes of the country’s economic crisis stem from fiscal policy, not monetary.
“Minister Tweah has undermined the relatively stable macroeconomic environment he inherited, and now excuses it away by telling perennial “since 1847” political tales to appease his boss. So, it’s only fair he’s taking most of the beating for the economic slump. But, the CBL and its Executive Governor Mr. Aloysius Tarlue need to step up too. Monetary policy works best when the public understands what the authorities are doing. In a time when financial inclusion is a global priority, CBL needs to lead the charge in promoting the Liberian people’s financial literacy. The CBL also must drive the public’s paradigm shift from a fixation on cash to a focus on digital transactions. This will help eliminate this cyclical liquidity squeeze we have every July and December, our peak economic seasons,” Konneh cautioned.
Poor political government and unrest are economic issues
Mr. Konneh further cautioned the Liberian government to realize that continuous unrests have correlated impact on investment opportunities, as a result, government needs to govern properly.
“The GOL and we the Liberian people need to ask ourselves this traditional Liberian question: “if house won’t sell us, who will buy us?” When I speak of buyers, I’m not just referring to the many foreign direct investment opportunities we’ve lost, in the last three years because of unnecessary noise, instability, incompetence and corruption. I’m also referring first to domestic investors and consumers who are too smart to invest in such a shaky environment.
“Take civil servants, for example. They’re collectively the biggest s buyers in the economy. When you cut their salaries illegally, just to make room to hire your partisans, they stop spending as much as they used to. If you cut 10% from their paycheck, they’ll spend 30% less. That means, your partisans who are petty traders and used to show up for your (CDC) political rallies at midnight after selling to the civil servants the UP Government paid regularly when you were an opposition party, earn less from what civil servants buy today. This is one of the reasons why you’re losing their support. It’s that simple!
“Also, when today’s opposition candidates and critics face life threatening attacks just because they criticize you, a population traumatized by war (CDCians included) gets emotionally and psychologically triggered and stops spending as much. Better, they think, to save, just in case we have to start running again. And theirs is a sophisticated assessment of the current situation. This is precisely why some of us stood in the middle of the Liberian political theatre so we could touch everyone much to the disliking of our UP colleagues. We wanted to relax exclusion, a key driver of conflict. Today, some of those we worked with in the opposition in the interest of inclusion and a stable political economy say either they “used” us or they suspected that we wanted to “break up” their parties. Far from the truth. They consider this action a political mistake and vow not to repeat it by including others from the opposition in the governance process. The choice is theirs.
“Our inclusionary policy helped us to keep the peace for 12 years and therefore, a stable political economy minus Ebola, and for the first time since the tenure of Tubman (1944 – 1971), one living President peacefully transferred power to another living President in two generations, both elected by the Liberian people. That’s all that counts. Who “used” who is immaterial. Political governance is as important as economic governance. We’re not saying all this to trigger distracting and unproductive legislative hearings or to fuel public outcry. All we want is for our government to make progress for our people,” Konneh stated, adding that from time to time he intends to continue providing professional advisement to other sectors of the economy