China’s Economic Slowdown Take Toll on Liberia
September 16, 2015
Downturn in world’s second-largest economy imperils West African nation as it emerges from Ebola epidemic
MONROVIA, Liberia—This West African nation, which the World Health Organization this month declared Ebola-free, is facing a new threat: China’s economic slowdown.
Turmoil in the world’s second-largest economy has roiled emerging markets. African nations such as Liberia count on China as one of their largest export destinations and a major donor and investor.
Liberia is contending with the likelihood of a long period of low commodity prices and falling Chinese demand.
“Their slowdown is affecting the commodity markets that are so important to Liberia and other African countries,” Christine Lagarde, the International Monetary Fund’s managing director, said during a two-day visit to Liberia last week.
Combined with an expected increase in interest rates by the U.S. Federal Reserve, a move that would push up rates across the world, “that makes your massive effort of conducting democracy and growth in a postconflict and post-epidemic environment even more difficult,” the IMF chief said.
Production of major exports such as iron ore and unprocessed rubber was already down because of the epidemic. As China’s economy cools faster than many expected, that has sent commodity prices into a nose dive.
That means smaller export receipts, declining government revenue and delays and cancellations of planned investments, Ms. Lagarde said.
She pressed the Liberian government to move ahead with economic policies the fund says will revive growth prospects, unlock IMF emergency financing and encourage donors and investors to pour much-needed cash into the country.
Liberia’s economy was growing at a healthy 8% annual rate after two decades of civil war ended in 2003. But in 2014, the Ebola virus hit the country, ravaging the small nation. The disease killed about 4,800 Liberians, more than 1% of the population.
With little health infrastructure, the government initially struggled to contain the virus. Farmers abandoned their fields, shop owners shut their stores and manufacturers cut output. Exports fell by more than 10% for two consecutive years and the economy—in which 80% of the population lives on less than $1.25 a day—was pushed into a deep recession.
The WHO said the government has finally stemmed transmissions with the help of a flood of international aid and health workers.
“Now that we are Ebola-free…we can use full force in moving our economy and our nation forward,” said President Ellen Johnson Sirleaf.
The IMF said that to do so, the government needs to scale up infrastructure investment, diversify the economy and focus more spending on development priorities such as health and education.
Moving ahead would help the country capitalize on strengthening recoveries in the U.S. and Europe. But failure to make those changes would leave the country exposed to anemic commodity prices and volatility from overseas. It would also make Liberia more vulnerable to political turmoil ahead of elections in two years.
Private investors and public donors such as the World Bank and U.S. Agency for International Development are watching to see whether Ms. Sirleaf’s government honors its commitments to the IMF. The fund has committed $130 million to the country—including a highly unusual $36 million in debt relief at the height of the Ebola crisis—to help get the country back on its economic feet.
The latest disbursement has been held up for months, however, amid questions over Liberia’s spending practices.
The government has yet to implement the recommendations of an accounting review this year of $100 million in road contracts that weren’t included in the budget and breached a number of hiring protocols. The central bank’s governor, J. Mills Jones, recently stirred controversy by using bank funds for private-sector microloans instead of building up depleted currency reserves.
Efficient public spending “is not only important for fiscal reasons, but also to obtain broad public acceptance for public investment projects,” Ms. Lagarde said in a speech at Monrovia’s city hall on Friday.
Finance Minister Amara Konneh said after two days of meetings that the government would address the IMF’s concerns.
“We are committed to implementing the recommendations in the audit that calls for deepening institutional reforms, particularly around public procurement,” he said in an interview. He also said Mr. Jones, in meetings with the IMF leadership, promised to raise reserve levels “and to use them appropriately,” adding that “Liberia has succeeded and survived the worst crisis since the end of the conflict.”
Source: By Ian Talley - Wall Street Journal
