Studi Economici
Liberia

Liberia

Population 4.2 million
GDP 481 US$
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Synthesis

major macro economic indicators*

  2012/13 2013/14  2014/15 (f) 2015/16 (f)
GDP growth (%) 8.7 0.7 0.9 2.0
Inflation (yearly average) (%) 7.6 9.9 7.9 8.2
Budget balance (% GDP) * -4.7  -3.5  -10.2 -6.9
Current account balance (% GDP) *  -28.2  -28.7 -41.6 -37.1
Public debt (% GDP)  27.4 33.5 41.2 46.1

 

(e) Estimate (f) Forecast  *Fiscal year from july to june  *Grants excluded

STRENGTHS

  • Diversity of natural resources (rubber, wood, iron, gold, diamonds and oil)
  • Strong support from the international community
  • Increasing investment in the mining sector and infrastructure
  • Member of the Economic Community of West African States (ECOWAS)

WEAKNESSES

  • Deficient infrastructure
  • Dependency on the price of commodity exports, energy and food products
  • High levels of poverty and unemployment
  • Recent and fragile democracy
  • Difficult business climate

RISK ASSESSMENT

Growth recovering gradually after the Ebola virus epidemic

Liberia was one of the three West African countries most affected by the Ebola virus (revenue loss estimated at 12% of GDP in 2015 according to the World Bank). The economic losses linked to this health risk such as health spendings, the reduction in foreign direct investments and capital flights are expected to continue to affect growth in 2016. These will be exacerbated by low prices of iron ore and rubber, which represent 75% of the country’s exports. The gradual recovery of mining production, particularly thanks to production at China Union, the country’s second largest mining company, as well as the start of commercial gold production are nevertheless expected to help maintain export revenues. Despite labour shortages and transport restrictions, agricultural production (53% of GDP) is also expected to play a part in the return to growth in 2016. The completion of certain mining and transport and energy infrastructure projects, which had been postponed because of the epidemic, should attract private and public investment. They will still, however, be hampered by the difficult business environment, especially as a resurgence of the epidemic remains a risk in the short term, which cannot be ruled out.
As for prices, inflation is expected to remain high given the food shortages, which maintain considerable inflationary pressure.

 

Substantial financial imbalances

The budget will be significantly affected by the consequences of the Ebola epidemic. Government revenues will be limited by low growth (taxes, duties, mining royalties). At the same time, spending will remain high, particularly social spending to help the most destitute, spending on infrastructures and military spending to make up for the departure of the United Nations troops. Some budgetary restrictions were introduced in the 2015/2016 budget through a restructuring of the administration, (wage cuts and abolition of posts). The budget deficit will be funded by aid from some governments (The United States, China), by concessional foreign loans and by government bond issues. The IMF has approved aid of USD 45.6 million through an extension until February 2016 of the Arrangement under the Extended Credit Facility and USD 36.5 million in debt relief in the form of a grant from the Catastrophe Containment and Relief (CCR) Trust, the IMF's new instrument for helping low-income countries recover from natural disasters. In spite of this, the public debt is increasing rapidly.
The current account balance, structurally in deficit, is expected to remain high in 2016. On the one hand restrictions on mobility as well as the moderation of prices for the main export commodities, will limit export revenues. On the other hand, the constraints limiting agricultural production will require an increase in purchases of food commodities. Moreover, imports will increase because of infrastructure investments and the expansion of projects in the mining sector. They will, however, be moderated by the departure of the United Nations forces and low energy prices. This current account deficit will be funded by foreign direct investments and by transfers of funds from international donors. The imminent accession of Liberia to the WTO should simplify customs procedures and duties, helping eventually to strengthen its commercial competitiveness.

 

Social tensions and political uncertainty

The political situation has improved markedly since the end of the civil war (2003) but remains fragile. The many ministerial reshuffles testify to the fragmentation of the political scene and the precariousness of the alliances. President Ellen Johnson Sirleaf will continue to face the challenges of the health crisis and its consequences on the population and the economy. In addition, socioeconomic frustrations (unemployment, poverty), shortages (food, water and energy) and allegations of corruption could continue to fuel protest movements. The security situation will be all the more precarious because the troops of the United Nations Mission in Liberia (UNMIL) are due to complete their withdrawal by June 2016, after 13 years of presence in the country. In view of the social tensions in the run-up to the October 2017 elections and of the disarmed former combatants who will be ready to join the regional militias, the departure of the troops leaves a security gap, which presents a short-term risk. The large-scale cross border traffic in weapons and mercenaries will remain a concern, particularly on account of the influence of international drug cartels in the sub-region. Despite the commitments made and the measures taken by the government (combatting misappropriation of public funds, improved access to credit) the country suffers from a very difficult business climate (placed 179th in the World Bank’s 2016 Doing Business ranking).

 

Last update: January 2016

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