Liberia may have overcome the shocks from the advent of the COVID 19 which affected the global economy with significant improvement in the socio-economic fortune of the country from latest predictions by the Economist Intelligence Unit, the publication arm of the Economist Group, a UK Think Tank in its 2021 Country report across the world.
The report released in April, 2022 analyzed indicators such as political stability, Electoral Watch, international relations, policy trends, economic growth , Covid-19,inflation, exchange rate and external sector.
The report addressing economic growth for the country stated that with the estimated growth rate of 3.4% recorded in 2021 which was driven by good returns from mining (including gold and diamond), agriculture (rubber, cocoa and timber) and manufacturing, real Gross Domestic Product (GDP) growth is expected to quicken in 2022 and 2023, in line with rising external demand for mining and non-mining exports, to 4.2% and 4.8% respectively.
On inflation, the report said that the global rise in the price of oil will affect the gains made by the government to bring down inflation from 17% in 2020 to 9% in 2021 which the report attributed largely to a shortage of Liberian dollars leading to rapid currency appreciation, but also in part to a slight easing of COVID-19 related supply-chain constraints.
“Inflationary pressures will pick up on average in 2022 as the printing of local currency buoys demand and leads to depreciation of Liberian dollar. In addition, a sharp rise in the global price of oil–one of Liberia’s main imports–will keep inflation high in 2022. We forecast that average inflation will rise to 11.3% in 2022, before declining to 8.7% in 2023 as oil prices drop”, the report said.
There were mixed bags in the section of the report that dwelled on the external sector of the economy, pointing to a boom in export earnings from iron ore, gold, rubber and palm oil and on the other side said there will be increase in import spending in 2022 as global oil and food prices increase.
“Export earnings will increase over the forecast period, driven by recovering global demand for iron ore, gold, rubber, and palm oil, which are among Liberia’s main exports. Export earnings will also be boosted by the continuation in 2023 of plans to set up export-oriented processing facilities for palm oil and rubber, and by a recovery in global rubber prices in 2023. Import spending will rise in 2022, as global oil and food prices increase, but decline slightly in 2023, as prices fall. Capital goods imports (such as machinery and transport equipment) for infrastructure projects such as roads will gradually pick up in 2022, and food import volumes will remain high throughout 2022-23. We expect the trade deficit to narrow in 2022-23 as growth in export earnings outstrips growth in import spending, from an estimated 12% of GDP in 2021 to 9% of GDP in 2023. The primary income deficit will widen sharply in 2022-23 as profit repatriation from foreign companies operating in Liberia picks up. The secondary income surplus will grow over the forecast period as donor inflows rise. Overall, we expect the current[1]account deficit to widen from an estimated 17.8% of GDP in 2021 to 20.6% of GDP in 2023, driven mostly by higher profit repatriation due to increased mining sector production”, the report said.
The EIU report further touched on the exchange rate regime of the government referencing how the International Monetary Fund reclassified the Liberian dollar-US dollar exchange rate as a de facto “crawl-like” peg, meaning that the authorities will continue to intervene to influence its direction. It said in 2021, the Liberian dollar appreciated sharply over owing to cash supply crunch. It did not speak well of its prediction on the exchange rate when it stated that the Liberian dollar will further depreciate as the government mints more money in the economy.
“In March 2021 parliament authorized the Central Bank of Liberia to print L$48bn worth of banknotes, but appreciation of the Liberian dollar will continue until the central bank injects the
new currency into the system in early 2022. Moreover, in 2022 the large structural current-account deficit will exert further downward pressure on the Liberian dollar. As a result, we expect the currency to depreciate steadily in 2022, to L$182.1:US$1 at year-end, and again in 2023, as the central bank continues to introduce new currency into the system, ending the forecast period at L$192.2:US$1”, the report said.
On COVID 19, it said in the near term it expect the government to remain focused on containing future covid-19 outbreaks–especially against the backdrop of the late 2021 emergence of the more transmissible Omicron variant–by securing a sufficient quantity of vaccines and implementing a vaccination drive.
It however said, given widespread vaccine hesitancy and impediments to the rollout, such as poor domestic healthcare infrastructure and global competition for limited supplies, we do not expect mass inoculation to be achieved before end-2023. Renewed IMF support will serve as a policy anchor and help the country to finance its fiscal and external deficits in 2022-23 against the backdrop of the ongoing and unpredictable.
Discussing about the indicators further, the report said Liberia’s ties with its neighbors will remain cordial in 2022-23, leveraging on the approval of the railway agreement between Liberia and Guinea allowing the latter to export its iron ore via Buchanan, a port on Liberia’s southern coast, strengthening bilateral economic ties.
The report said Support from multilateral donors will continue, to help Liberia deal with the fallout from the pandemic and to address its balance-of-payments pressures. It mentioned the US$55m credit-financing deal that was approved by the World Bank in early June 2021 to increase productivity and market access for smallholder farmers in the country, as well as by the continued extended credit facility (ECF) arrangement with the IMF, which ends in 2023.
“Relations with the US will remain strong, underpinned by financial and military Co-operation between the two countries and Liberia will continue to receive support from other Countries. Liberia has also received covid-19 vaccine donations from several countries–including 302,400 doses of the Johnson & Johnson vaccine from the US at end-July and 96,000 doses of the AstraZeneca vaccine from France–under the World Health Organization’s COVAX Facility. Close ties with and funding from China, France and several Arab states will continue in 2022-23”, EIU noted.
The predictions on the country’s political stability may not seem to be close to what may happen as was done with the other sectors discussed in its report because events and circumstances may have consumed what was expected to be in 2022 because most of the parameters were largely based on what actually happened in 2021.
“Public frustration with the rule of the president, George Weah, will rise in the run-up to the October 2023 presidential and legislative elections. The fallout from the coronavirus pandemic coupled with the severe local-currency shortages experienced in 2021 have dampened domestic demand and eroded trust in the financial and political systems. The policy response to the pandemic—with economically damaging lockdowns and the distribution of financial support perceived as unfair by the most vulnerable–further damaged Mr. Weah’s popularity among the electorate. With poverty and unemployment–particularly among informal workers–having risen during the pandemic, EIU expects increased social unrest in 2022-23, alongside opposition-led protests”, the report said.
Discussing the ensuing Presidential and legislative elections, the report’s take on the outcome of the race will now be a subject of serious debate because while it predicted a loss by President George Manneh Weah under a Collaborating Political Party (CPP) opposition, it is not clear if EIU will stand by its prediction since the CPP seems to have been broken apart.
“The next presidential and legislative (House of Representatives) elections are scheduled to take place within our forecast period, on October 10th, 2023. We expect that Mr. Weah will run for re-election as president, as leader of the ruling political alliance, the Coalition of Democratic Change (CDC). It is currently unclear who the Collaborating Political Parties (CPP), an alliance of four opposition parties that will be the main political rival to the CDC, will elect as their candidate to face Mr. Weah, whose re-election chances will be influenced heavily by his ability to kick-start economic growth in 2022-23. Little progress on poverty alleviation programs and general distrust in the political system, exacerbated by the 2021 local-currency shortage, will feed anti-incumbency sentiment, and hurt his chances of re-election. We forecast that, although the presidential election will be extremely close, Mr. Weah will lose to the candidate of the CPP, which may incorporate more political groups than it does today. Furthermore, although we expect the election result to be contested, we do not expect Mr. Weah to use his close ties with the police and the military to forcibly hold onto power”.
The Economist Intelligence Unit (EIU) is a research and analysis division of the Economist Group providing forecasting and advisory services through research and analysis, such as monthly country, five-year country economic forecast, country risk service reports and industrial reports.
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