Liberia

major macro economic indicators

(e): Estimate (f): Forecast *Inclung grants; Fiscal year 2021 from July 1, 2020 to June 30, 2021 **Including official transfers.

RISK ASSESSMENT

A recovery is in progress but remains fragile

Since the Ebola epidemic in 2014, the country's growth has been volatile. After being negative for two consecutive years, notably due to the impact of the COVID-19 pandemic in 2020, growth returned to positive territory in 2021 and consolidated in 2022. In 2023, despite the relatively slow pace of the vaccination campaign (in September 2022, only 46% of the population had been fully vaccinated), the recovery will intensify. It will be driven by external demand for products from forestry, agriculture (rubber, rubberwood, cocoa, palm oil) and, above all, mining (iron, gold, and diamonds). With prices rising for these exports in 2022 and expected to drop but remain high in 2023, the country's trade is set to benefit. Consumption will continue to rebound in 2022 as well, but rising inflation and the recurrent threat of banknote shortages will likely put pressure on its contribution. Consumption will be additionally supported by remittances flows from abroad, but also by the country's improving vaccination campaign, after previously receiving 300,000 doses from the United States in 2021, as well as Chinese and French financial aid. Private investment should improve, mainly thanks to a new 25-year agreement reached with ArcelorMittal in September 2021 approving a USD 800 million extension of the Mineral Development Agreement signed in 2005. The agreement covers the expansion of the mine, processing plant, rail and port facilities. From 2023 onwards, it could allow for the annual delivery of between 15 and 30 million tons of iron ore, compared with five million tons previously. Public investment in infrastructure (notably transport and electrification) should continue its slow post-pandemic recovery.

Inflation will pick up in 2022 and remain high in 2023, interrupting the disinflationary trend started in 2021. High commodity prices should continue to fuel inflationary pressures, despite the tight monetary stance (central bank policy rate at 20%).

Deficits financed by external aid

Chiefly burdened by a large trade deficit, the current account deficit will remain very high, but relatively stable. In 2022, the prices of export products, mainly agricultural and mining products, are expected to remain high, as are the prices of imported goods, especially oil, keeping the deficit at a relatively similar level. The trade deficit will be partially mitigated by a surplus in the transfer account, thanks to expatriate remittances and foreign aid. Services, and to a lesser extent the primary income account, will post deficits, facing increasing profit repatriation by foreign companies. The current account deficit will be financed partly by FDI (8% of GDP), but mainly by concessional multilateral loans. Foreign exchange reserves are precarious, projected to fluctuate around the 3-months of imports mark. Exchange rate volatility is expected: after its recent appreciation, a depreciation should follow, and reserves will be insufficient to compress to fine-tune fluctuations.

Despite rising mining revenues, the government deficit will remain large in 2022 and 2023, due to the need to partially subsidize households for rising living expenses. The effects of the domestic resource recovery strategy, which aims to increase budgetary revenues and minimize tax losses, will not be felt until 2023 as inflation abates. As part of the IMF ECF, the country has also committed to upholding debt rules, which include a reduction in domestic borrowing from the Central Bank of Liberia (CBL). Still, additional debt will be issued to partially fund the extra spending. Public debt will remain high, but is expected to decline further in 2022. The external share of the debt makes up the lion’s share (70% of the total) and is almost exclusively multilateral and concessional, reducing the risk of debt distress.

The pandemic undermines George Weah's administration

The election of former footballer George Weah in 2017 represents the first peaceful democratic transition in a country marked by two successive civil wars (1990-1997 and 1999-2003). Through his Pro-Poor Agenda for Prosperity and Development (PAPD), President Weah has affirmed his desire to remedy the lack of infrastructure, reduce poverty, promote access to basic public services, and fight corruption. However, the criticized management of the COVID-19 crisis (numerous lockdowns, weak health services, etc.), as well as corruption cases and social unrest linked to the context of poverty and mass unemployment, aggravated by growing imported inflation in the food and energy sectors, are weighing on the President's popularity. Political and social stability may well be tested in the run-up to the presidential elections scheduled for October 2023 due to widespread criticism of the George Weah administration. Despite persistent social tensions, the absence of a significant opposition following the dissolution of the main opposition alliance (the Collaboration of Political Parties) in February 2022, is expected to bolster the re-election of the Congress for Democratic Change (CDC) led by George Weah.

Last updated: September 2022