The Bitter Truths About The Liberian Economy Under The Weah-Led Government

The Perspective
Atlanta, Georgia
October 1, 2022

According to the recent World Bank (WB) report on Liberia, after a 3 percent contraction of real Growth Domestic Product (GDP) in 2020 due to the COVID-19 pandemic, real GDP growth recovered to 5 percent in 2021, The Minister of Finance and Development Planning, Samuel D. Tweah Jr, predicted President Weah will win next year’s presidential election based on the success of his first six years in office. Tweah argues that come to the 2023 election, President Weah will tell the Liberian people the story of how he inherited a broken economy that has now rebounded with growth expected to average more than 4 percent.  

During the United National General Assembly address, President Weah stated “I am pleased to report that the IMF’s latest appraisal of the ongoing program it has with Liberia is very positive. It shows that inflation rates have been significantly reduced. There are now better prospects for economic growth compared to previous years – despite the negative effects of Covid-19. Our efforts at instituting new policy measures to fight graft were also particularly commended in the report, along with our adherence to prudent fiscal management.” 

The most famous statistics -- Growth Domestic Product (GDP), household income, and unemployment -- focus on the rational side of what people do: what they spend, how much they make, and whether they have a job. Traditional metrics like these do not tell us anything about people's happiness and well-being. Take for example real economic growth rate: a measure of how much the economy grew, in real terms. The real growth rate is essentially a quantitative measure. While it measures the total goods and services produced in a given year, it does not say anything about how the quality of life has changed, and whether or not available resources were used transparently and beneficially.

As a result, some renowned economists have concluded that the growth rate of an economy at any point in time is meaningless unless there is a Context to the discussion. Some ways of introducing context are to compare performance to another recent period or the performance of peer countries with similar economic fundamentals. These exercises should show whether or not in a particular epoch, a country’s performance is unprecedented or spectacular. 

In addition, the United Nations' Sustainable Development Solutions Network has introduced alternative measures of economic well-being that capture more holistically, all aspects of economic performance. The UN, for example, introduced the concept of the World Happiness Report  (WHR) in 2012 in support of a UN High-level meeting on “Wellbeing and Happiness: Defining a New Economic Paradigm.” The World Happiness Report on 6 indicators: GDP per capita, social support, healthy life expectancy, freedom, generosity, and corruption. Politicians or leaders can no longer assume that the lives of those in their countries improve with a rise in GDP as was shown in the Arab countries where GDP was increasing, but residents' ratings of their lives trended downward ahead of the uprisings or in Liberia where remarkable economic growth in the 1960s has not brought substantial change in the lives of the people. With more inclusive metrics, the World Happiness Report is the first report to rank countries by how their populations feel. Liberia is ranked 97th out of 146 countries on the 2021 World Happiness Report.  

Several factors affect real economic performance. The quantity and quality of a country’s labor force and its natural resource endowment all affect the investment, production, and consumption decisions of economic agents. To steer the economy in a direction that is over and above what is warranted by the labor force and endowment, governments would normally introduce fiscal, financial, and monetary policies that support the achievement of both a higher level of growth and qualitative improvements in livelihood. More importantly, because in today’s global environment, countries do not operate as islands unto themselves, developments in the global economy, especially those of major trading partners, international prices of imported and exported commodities, and the general flow of financial resources, all shape a country’s economic outcomes. While the latter is not within the control of a country, sound domestic socio-economic policies on health, education, environment security, and infrastructure will improve the overall quality of life and the business environment to make the private sector flourish.

Liberia's Recent Economic Performance
Liberia's recent growth performance has mostly been shaped by improvement in global trends rather than sound economic policy management, which has taken a turn for the worse under Weah’s administration. Recent developments on recovery in the price of main export commodities; the shift in foreign investors’ interest to developing economies as growth in advanced economies reached saturation points, have helped Liberia to expand existing foreign investment, especially in the mining sector. However, poor policy choices, unprecedented corruption and theft of public resources, infrastructure deficiency and security challenges, and economic growth during Weah's administration have been relatively poor. 

The Fact Speak For Themselves 
In the four years (2018-2021) of Weah's administration, real GDP growth averaged 1.2% to 5%. This record is much lower than the four years of his predecessor (2006–2009) when growth averaged between 5% to 9%. President Sirleaf to her credit was able to market her government which led to strong foreign investors’ appetite for Liberia. The difference, it seems, is in the leadership and policy choices of the different periods. Therefore, the 5 percent in real GDP growth in 2021 under Weah’s administration can hardly be said to be “unprecedented”. It’s poorer than his predecessor’s achievements in fewer beginning circumstances.

Some Glaring Inconsistencies
Many Liberians have wondered how the high growth rates being reported are possible, given the “facts on the ground” – to use a well-worn Liberia phrase. As explained above, decent rates of growth are possible in a chaotic domestic environment so long as external conditions are largely favorable. Notwithstanding, from a strictly conceptual point of view, there are serious reasons to question recent growth data and the integrity of data more generally, as would be clear in the following exposition. To accept current measures of economic performance and the high growth rates, one would have to agree that the fighting in Ukraine, which has brought the world economy to a halt in the past 7 months with spillovers to neighboring regions, has not made a dent in growth. 


Inconsistencies in Key Macroeconomic Indicators
Liberia's main macroeconomic indicators have weakened considerably recently, raising questions about why the weakness has not impacted growth. A few examples will suffice:

• Fiscal balances: Liberia’s fiscal balances are much weaker than at any time since the beginning of the post-conflict regime. In the past 3 years of Weah’s administration, the fiscal account was in deficit, on average by -3.8 percent of GDP. In 2021, the fiscal deficit narrowed to -2.9 percent. According to the International Monetary Fund (IMF), it is projected at -5.0% of GDP in 2022. 
  

•  Current Account Deficit (CA): Liberia's account deficit has worsened under the Weah-led administration. According to the WB, the current account deficit widened from 16.3% of GDP in 2020 to 17.7% in 2021 mainly due to the worsening trade deficit. The deficit was financed mainly by foreign direct investment (FDI) flows, donor loans as well as non-debt-creating project grants.

• Public debt: Public debt stock is much higher than at any time since the Paris Club debt exit of 2010. In 2010, the 19-nation Paris Club pardoned $1.2bn (£764m) worth of Liberia's debt. According to the WB and IMF Debt Sustainability Analysis (DSA), in 2021, total public debt reached US$1.8 billion (53.2%t of GDP), up from US$1,781 million (58.7% of GDP) in 2020. External debt includes US$1.91 billion debt to multilateral lenders, US$62 million debt to bilateral lenders, and US$51 million debt to commercial lenders. Domestic debt consists of US$382 million in government borrowing from the Central Bank of Liberia(CBL) and US$49 million in sovereign bonds held by commercial banks. In addition, banks hold local currency government bonds equivalent to US$48 million that the government issued to finance the budget over time. 

Question: Given the well-established negative correlation between debt and economic growth, how has growth been so strong in Liberia? 

• Debt service: Under the led administration, Liberia is spending more on debt servicing. According to the 2022 Liberian budget data, close to 10.8% (US$105 million) of recurrent expenditure is devoted to servicing debt alone, in contrast to 2016, when only around 3% (US$12.73 million) of total recurrent expenditure was spent on debt service during the Sirleaf led administration.

Question; The major conundrum is the lack of clarity on why debt accumulation should be so high in the presence of a historical rise in the budget and expansion of our economy and what exactly the debt is financing.

• Foreign reserves: Liberia’s foreign reserves have followed a pattern similar to the other indicators since the beginning of Weah led administration. According to the World Bank, from 2006 to 2017, Liberia's foreign reserves rose from US$71 million to $585 million. However, under the Weah-led administration, Liberia's reserves have declined from US$585 million in 2017 to US$340 million in 2020. Liberia is playing catch-up. As previously stated, Liberia's international reserves were at the level of 340 million US dollars in 2020, up from 297 million US dollars in 2019, this is a change of 14.78%. Although stabilization funds exist, the government has struggled to replenish them despite high commodity prices.

The Quality of Growth
Apart from the growth rates that do not match economic realities, there are serious questions about the quality of Liberia's growth. Sustained growth over the years has not made a dent in poverty or led to broad-based improvements in living standards. While some indicators improved in the early post-conflict era, many have now nose-dived, as no conscious effort has been made to skew policies in favor of socio-economic wellbeing. Some examples:

•  According to the 2022 Human Development Report (HDR), Liberia remains in the low human development category being ranked 178 out of 191 countries and territories on the 2021 Liberia Human Development Index. 
  

• Reputation for widespread corruption remains high, ranking 136th out of the 176 countries on Transparency International’s 2021 Corruption Perception Index.
  

• Life expectancy is just 64 years, five years lower than in Rwanda and 13 years lower than in Algeria.
  

• The rate of childhood malnutrition is 32%t, more than 25% of the rate in Ghana. According to the World Health Organization (WHO), “45% of deaths among children under the age of 5 are related to malnutrition in Liberia. 
  

• Basic literacy among 15- to 24-year-olds is just 55.4% compared with 84% in Ivory Coast. 
  

• Official estimates of the poverty rate vary from 50.9% to 64%, depending on whether the poverty line is drawn at 2,100 calories per day or US$1.25 per day. However, according to the world bank, Poverty affects 50.9 percent of the population. 

• Infrastructure continues to be a major challenge: electric power, transportation infrastructure, telecommunications infrastructure, and Internet and broadband access are limited. Water and wastewater systems are nonexistent outside Monrovia.
  

• World Bank governance and business environment indicators are much weaker than for rubber exporting or African peers. Liberia ranks 184th out of 189 economies for trading across borders. The Global Competitiveness Report of the World Economic Forum for 2019, ranked Liberia 132 out of 137 countries in the Global Competitiveness Index. In the annual Open Budget Survey, a survey that ranks countries according to their level of accountability in the nation's budget processes, Liberia’s score has declined progressively since 2018, and in the latest score for 2021, Liberia scored 45 percent for transparency. This does not compare favorably with the performance of Ghana (56%), South Africa (86%), Brazil (80%), and Mexico (82). 

The Size of the Liberian Economy
Many Liberians are somewhat puzzled about the new size of the Liberian economy relative to their quality of life. As revealed, the Liberian economy is growing, but the growth does not correlate with the quality of life. Apart from a higher per capita income due to the economy's size, many other indicators merely confirm that the economy has been underperforming all along, as several indexes now put Liberia at a much lower ranking than other African countries. Sadly, Weah’s administration is focusing on trumpeting the good ratios, rather than focusing on policies on how to improve some of the poor ratios below:

• Though Liberia’s per capita income rises in line with nominal GDP, it remains well below peer group medians as well as those of mining-producing Guinea and Ivory Coast. 
  

• FDI now falls to less than 3% of GDP, which shows that Liberia has one of the lowest levels of FDI inflow in the African region.
  

• With fiscal revenue now falling to around 29.9% of GDP, the overdependence of the economy on mining, rubber, and the grant is starker than in the past and compared to other countries, Liberia now has one of the weakest revenue mobilization ratios in West Africa peers.
  

• Financial market development which is usually measured by money supply in percent of GDP is now just around 20% of GDP. Compared to Ghana (30%), Angola (37 %) Mauritius (164%), South Africa (74 %), and Kenya (42 %). These show that Liberia has one of the least developed financial markets in Africa.
  

All things considered, the 5% of GDP growth rate is neither unprecedented nor a superior achievement, relative to past governments. The performance is not the result of policy choices, but a favorable external environment. While the revision to GDP is a credible exercise that confirms the size of Liberia’s economy, it also shows how poor performance has been all along. It’s time the Weah-led administration focuses on better economic outcomes.

---