Liberia: Economic Growth Slows On Weak Currency
December 27, 2015
Fall in commodities prices has hurt economy, while weak Liberian dollar has contributed to high inflation.
Growth has slowed drastically in Liberia on the combination of a weak currency, high inflation and low commodities prices.
The economy would have grown as much as 7 percent in 2014, but the damage caused by the Ebola epidemic reduced it to less than 1 percent, according to International Monetary Fund statistics.
But Liberia is expected to come back in 2016, as commercial gold production, manufacturing and a gradual resumption in construction are expected to support real GDP growth of 3.8, according to the African Development Bank. The end of the Ebola epidemic -- the last two patients suffering from the disease were released from Liberian hospitals in December-- will also speed economic recovery, the IMF said in a report on Dec. 22.
Nonetheless, experts warn that the collapse of commodities prices on the global market has badly hurt the economy, even as it recovers from the effects of the Ebola epidemic.
“There is low purchasing power already among the people coupled with the high cost of goods,” commented Simeon Freeman, a Liberian businessman and political leader. “Things are going to get very difficult because nothing is happening with the oil market and the price of rubber and iron ores have that have dropped on the world market.”
Liberian Commerce Minister Minister Axel Addy told the press on Tuesday that the prices of country's two major exports - iron ore and rubber, have dropped to over fifty-percent of the market price, putting extreme pressure on the mining industry.
“2015 is a difficult year for Liberia’s economy as many companies have pulled out due to Ebola. Western Cluster Iron Ore mines, which has over 500 employees, now has 5 employees left, while Putu Iron Ore Mines has also scaled down," complained Nathaniel Blama, a Liberian businessman.
The effect of the export slowdown has been to weaken the Liberian dollar, which has remained above 80 to the dollar for most of the year -- that is close to its lowest point against the U.S. currency of 92.
“Things could be dangerous in 2016 if the government does not deal with this problem; right now there is insufficient Liberian Dollars on the market, ” Freeman said.
Due to the exports slowdown, metals producer Arcelor Mittal announced that it would cut 450 jobs in November. Iron ore producer China Union has also announced severe job cuts.
Meanwhile the low value of the Liberian dollar, along with the economic slowdown, has led to rampant inflation. Inflation was up to 9.5 percent annually in August (latest official figure), from 8.6 percent in January.
Household incomes have suffered, as rising prices cut into savings, the World Bank noted in its report on Liberia in November 2015.
Blama called for government investment in agriculture, as well as in small- and medium-sized businesses to kickstart economic growth.
But the government is short of funds. In the 2013/2014 fiscal year, the government ran a deficit of $74 million. The 2015/2016 budget allocated $604 million for spending, but much of that is to be financed by borrowing.
And the government debt has now risen to the level of about $1 billion.
The IMF warned in its statement about "limited fiscal space," for Liberian government spending, and urged the government to improve its fiscal policy and to iimprove tax collection.
Source: By Evelyn T. Kpadeh - Anadolu Agency