At the 10 year benchmark marking the end of the conflict, the security situation in Liberia has stabilized but remains fragile. The UN Security Council (SC) recently extended the UN Mission in Liberia (UNMIL) mandate until September of 2014. UNMIL continues its gradual withdrawal of armed forces but is maintaining current levels of support for police. The SC also encouraged the Liberian government to strengthen its efforts to accelerate national reconciliation as well as on governance, transparency and accountability in the management of natural resources, noting with concern the potential for conflict over those resources, especially related to land ownership. The SC noted that issues of corruption threaten to undermine the stability and effectiveness of government institutions.
Thanks to sustained growth, relatively low inflation and strategic social interventions the Government has been made notable progress in reducing poverty but significant challenges remain in achieving MDG targets. The proportion of the population living below the poverty line is estimated to have fallen from 64% in 2007 to 56% in 2010. Liberia has surpassed the target for reducing child mortality (MDG-4), and made notable progress in reducing maternal mortality. Liberia also achieved the target for reducing under-nutrition. However, achievement of the Millennium Development Goals (MDGs) has progressed slowly and much remains to be done. Liberia will likely meet the MDGs of eradicating hunger (MDG 1), promoting gender equality and empowering women (MDG 3) and developing a global partnership for development (MDG 8), while the remaining five MDG targets, all concerning human development, are unlikely to be met. In December 2012, the government launched a comprehensive, ambitious new Poverty Reduction Strategy (Agenda for Transformation-AfT), which aims to transform Liberia into a middle income by 2030, through placing special emphasis on investment in infrastructure and human development.
Liberia continues to make notable progress on structural reforms to improve governance and the environment for private sector development. The government has established an Anti-Corruption Commission, passed an Access to Information law. It has also established a Code of Conduct for public officials and more recently in April 2013 passed a new Anti-Money Laundering and Countering the Financing of Terrorism Law. On the economic governance side, the government has also made progress in implementing systems to better manage and account for public resource including the Integrated Financial Management Information System (IFMIS). The government is also in the process of modernizing customs through the deployment of an Automated System (ASYCUDA) in the Port of Monrovia, the international airport, and a number of other border points. The authorities are also implementing an integrated tax administration system to modernize and strengthen tax administration. While commendable progress has been made in articulating important structural policies and building new systems and institutions, pursuant to enhancing good governance and the environment for private sector development, key challenges remain. Not the least of these challenges is the lack of adequate capacity within the civil service to effectively use these systems and institutions to ensure effective service delivery.
President Ellen Johnson Sirleaf recently acknowledged that much has been achieved in the last 10 years but that much more remains to be done. Her government is committed to increasing and ensuring transparency and accountability in government and has asked all Liberians to join her in the continued fight against corruption. This action came in the face of mounting criticisms against the President and her government on the mounting wave of corruption affecting the public service.
In a related development, the government has created a new Revenue Authority resulting from the merger of the ministries of Finance and Planning and Economic Affairs into the Ministry of Finance, Development and Planning (MFDP). Finance has relinquished its revenue collection mandate to a newly established semi-autonomous agency, the Liberia Revenue Authority (LRA). The establishment of the LRA and the MFDP is part of government’s efforts to bring cohesion to the operations of government by eliminating current duplications and gaps in the functions of the Ministry of Finance (MOF) and the Ministry of Planning and Economic Affairs (MPEA).
The government is also striving to ensure more efficient and effective employment of human and financial resources for better service delivery in order to achieved the objectives of the country’s ambitious Poverty Reduction Strategy—Agenda for Transformation (AfT). The AfT, which was launched in December of 2012, is underpinned by the National Vision—Liberia Rising—which was developed following extensive consultations with the Liberian people and articulates the government’s aspiration for Liberia to achieve middle income status by 2030. The AfT is structured around the following five strategic pillars: Pillar I - Peace, Justice, Security and Rule of Law; Pillar II - Economic Transformation; Pillar III - Human Development and Pillar IV - Governance and Public Institutions. Pillar V covers cross cutting issues, including: gender equality, child protection, disability, youth empowerment, environment, HIV/AIDS, human rights and labor and employment.
Liberia continues its relatively strong recovery from 2008/09 global crisis, thanks in large part to an extended track record of prudent macroeconomic management. The recovery has been sustained by strong inflows of foreign direct investment in concessions, a resumption of production in the iron ore sector and increasing levels of activity in the construction and services sectors. However, the domestic economy including manufacturing has shown little or no growth, constrained by the major infrastructure deficit, particularly electricity as well as weak domestic demand. Consequently, unemployment particularly among the youth remains high and a major challenge for the Government. In addition, the narrow base of the economy and its continued dependence of food and fuel imports make the country vulnerable to commodity price shocks.
The government’s FY2013/14 budget and medium-term forecast underscores the government’s intent to maintain a sustainable fiscal balance stance while shifting resources to capital spending to address infrastructure constraints, particularly energy and roads. The government has also shifted more fiscal resources to the security and rule of law sector to respond to the planned gradual withdrawal of UNMIL which is already underway. Fiscal revenues are expected to increase, reflecting increased inflows from the iron ore sector but also from improved tax administration and the relatively robust growth.
Liberia’s medium-term economic prospects are good but there are potential downside risks. The economy is projected to grow at an average annual rate of about 6% throughout the next five years (2013-17), reflecting strong inflows of foreign direct investment in the natural resource-based sectors. Inflation is expected to stabilize at around 4-5% per annum, although there are some possible risks arising from exchange rate depreciation. The volatility of food and fuel prices and global economic uncertainties pose risks to the medium-term prospect as the economy remains undiversified and dependent on imported foods and fuel. Substantial increases in public investment is planned to address infrastructure bottlenecks in roads and electricity, but implementation capacity remains a challenge. As a result of the planned increase in capital spending, the overall fiscal deficit including grants is projected to be in the 5-6% of GDP range between 2013 and 2017. However, the deficit is expected to be financed primarily by concessional borrowing to ensure external debt sustainability over the long-term.
The Liberian economy is relatively stable with robust growth but unemployment remains a major challenge. Economic growth remained robust, with GDP growth rate estimated at 8.3 in 2012 following the nearly 8% expansion in 2011. The overall output expansion was largely driven by increased production in the mining sector (mostly iron ore mining) but substantial contributions also came from agriculture, and services. Growth in manufacturing continues to be constrained by the high cost and limited access to electricity. Output is projected to grow by 8.1% in 2013. In spite of the robust growth, unemployment—particularly of youth—remains a major challenge. The most recent Labor Force Survey (2010) showed high rates of vulnerable employment in Liberia, especially in rural area (86%) and among female (87%).Unemployment remains high largely because of the underperformance of the manufacturing and agricultural sectors. In addition the domestic private sector remains hampered by weak infrastructure, lack of finance, and relatively weak domestic demand. A good track record of prudent macroeconomic policies has resulted in improved economic stability with inflation moderating from 8.5% in 2011 to 6.8% in 2012.
The government remains committed to maintaining fiscal discipline but effective budget execution remains a challenge. Although Liberia reduced its top personal and corporate income tax rates from 35% to 25% its tax revenue has steadily increased due to improved tax administration, and increased economic activities. Tax revenue increased from 17% of GDP in FY10 to 19% in FY2011 and further to 21.8% of GDP in FY12. Total expenditure as a share of GDP increased from 23.1% in FY10 to 27% of GDP in FY11, largely as a result of the doubling of the share of capital expenditure. Total expenditure is estimated at 31.4% of GDP in FY12. The government’s plan to create fiscal space for investment in road and electricity infrastructure has shifted the overall fiscal balance from a surplus of 0.5% of GDP in FY10, to a small deficit of 0.6% in FY11 and an estimated deficit of 3.4% of GDP in FY12. Monetary policy continued to target price stability through interventions on the foreign exchange market. The introduction of the Treasury Bill Market in early 2013 has provided the Central Bank of Liberia (CBL) with one more monetary policy management tool.
Liberia’s external position is likely to improve only over the medium to long term as export growth fueled by foreign direct investment materializes. The substantial increase in export value from iron ore was more than able to compensate for the reduced earnings from rubber resulting in an overall 28% increase in export earnings in 2012 and an improvement in the merchandise trade balance. However, a substantial increase in net income outflow in 2012 resulted in an overall marginal deterioration of the current account. Consequently, the current account deficit increased from 32.7% of GDP in 2011 to 33.6% of GDP in 2012. The improvements on the capital account were inadequate to compensate and consequently reserves were drawn down by some US$32 million. The current account deficit is also projected to increase in 2013 as imports grow relatively faster than exports and income outflows increased. Imports are projected to accelerate reflecting an increase in the capital goods necessary to support the phased expansion of mining and infrastructure projects, thus further amplifying the current account deficit. It is projected that the current account deficit will widen to about 47% of GDP in 2013. The deficit for 2013 is expected to be fully financed by official transfers and foreign direct investment (FDI).
Last updated October 2013
The new Liberia Country Partnership Strategy FY13-FY17 (CPS), was prepared jointly with the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA) and was discussed by the Bank’s Board of Director’s on July 30, 2013. The IDA allocation for the lending program for the CPS period is expected to be about US$ 308 million.
The CPS reflects the World Bank Group's commitment to exploit synergies internally, to generate the maximum development impact through innovative solutions, and externally to leverage World Bank Group knowledge and technical expertise through other partners' resources. The CPShas been developed and will be implemented in close coordination with development partners such as the African Development Bank (ADB), the European Union (EU),the United States Agency for International Development (USAID)and the Swedish International Development Cooperation Agency (Sida), all of whom are or were also designing their respective country assistance strategies. The World Bank also strategically partnered with the United Nations (UN)in the preparation of United Nations Development Assistance Framework (UNDAF) that is a more focused UN collective response to national priorities and will be implemented based on the "Delivering as One" concept. Alldevelopment partner strategies are fully aligned with the Agenda for Transformation.
The Bank programming in the new CPS focuses on financing infrastructure investments, especially energy and transport. More emphasis is placed on building the human and institutional capacity necessary to deliver results in these sectors. World Bank studies confirm that the lack of basic infrastructure, especially energy and roads, is the binding constraint to accelerating growth; the infrastructure gap also impedes effective delivery of key social services. Energy, transport and telecommunications infrastructure are key to broadening the base of the economy and making Liberia’s growth more inclusive. New operations in human development and public sector governance operations will focus on improving access to basic services and strengthening public sector capacity in other areas critical to achieving long term peace, security and stability for Liberia.
In addition, a series of Development Policy Loans, of approximately US$10 million a year will be programmed to support Economic Transformation, Human Development and Governance and Public Institutions Pillars of the AfT. The remainder of IDA's financing will support building institutional and human capacity essential for the successful implementation of the country's long-term vision. The CPS Progress Report will revisit the sector allocations at midterm.
Tight cooperation among development partners to enhance the effectiveness and transformational impact of national efforts is a major theme of the CPS. Liberia will continue to depend heavily on development partners', therefore increased support and coordination will be crucial to ensure that all development priorities of the AfT are addressed in the next five years and beyond. IDAresources will be leveraged with multi-donor trust funds and the strategic use of Bank knowledge products.
The World Bank Group Portfolio in Liberia
IDA – The International Development Association
As of September 27, 2013, the IDA portfolio consisted of 12 national and 4 regional projects for a total commitment of US$589 million, of which US$394 million (66%) is undisbursed–with three of the national and one of the regional projects are not yet effective. There are no at risk or problem projects in the portfolio at this time. Four of the approved projects, two in the energy sector, one health operation and one budget support operation, are not yet effective.
During the previous Joint Country Assistance Strategy (JCAS) period, the Liberian Reconstruction Development Committee, chaired by the President, provided high-level strategic coordination and policy dialogue with the government and the donor community. The momentum for strategic coordination declined, but then emerged again under the leadership of the Ministry of Planning and Economic Affairs (MOPEA) in their coordination of the National Vision and PRS2 process. Joint government and donor sector working groups collaborated on the first drafts of the PRS2.
The Government of Liberia has recently strengthened the Aid Management Unit of the Ministry of Finance and has prepared a new draft Aid Management Strategy along the spirit if the New Deal; Liberia is a pilot country for the New Deal and is partnering with Sweden and the United States. The Bank has been a major proponent of aid coordination through the multi-donor Liberia Reconstruction Trust Fund (LRTF) as well as well the donor groups in public financial management, public sector reform, agriculture, social protection, energy and health. Active donors with presence in Liberia includetheUnited Nations family,the African Development Bank,the European Union, USAID/MCC, China,Germany, Japan, Sweden, Norway, the United Kingdom and Ireland.
Last updated October 2013
The International Finance Corporation (IFC) in Liberia
IFC’s current and future portfolio of investments and advisory services will be essential in delivering the agreed CPS strategy, which will be complemented by a joint Business Plan elaborated by IDA and IFC. The current IFC portfolio comprises US$ 7m in equity, US$13m credit and trade lines in four (4) Liberian banks; US$13m seed investment in the West Africa Venture Fund for direct on-lending to, or equity in SMEs and US$10m debt financing to a rubber producer. A robust pipeline of potential new IFC investments signals an average of US$60-80 million per year over the next few years.
The priority sectors for new IFC investments during the CPS period will be Agribusiness, Energy & Infrastructure, Financial Services and Mining. While IFC will consider investment proposals on their merits, and not ignore investment activities in non-priority sectors, the priority sectors present viable and sustainable investment opportunities that are consistent with Pillar II of the Liberian government’s AfT and development partners’ focus on sustainable employment creation. Extensive reform activities of the past six years have made the priority sectors more investment ready. IFC’s on-the-ground presence since June 2007 has enabled it to scale up activities with discussions ongoing on a number of potential investments in agribusiness, power and financial service. During the next several years, IFC, through its investment and advisory services will also focus on:
Supporting private sector led investments that deliver transformational impact in power generation through partnership with an IPP under a joint WBG framework to power sector development in Liberia and IFC’s “Power in Fragile and Conflict-affected States” initiative.
Continuing support, together with the World Bank Institute,for women entrepreneurship through IFC supported first women entrepreneurs’ network. This network provides a peer to peer learning and mentorship platform for women business owners in Liberia. Since the creation of the network in March 2013, more than 50 women entrepreneurs have received business and financial management skills training. Through the network IFC has also organized a series of seminars on tax, access to credit as well as marketing and branding. The network is also an opportunity to segment the women SME market and showcase a pool of entrepreneurs that financial institutions and international companies can potentially work with.
Strengthening Financial Markets: IFC has approved a trade line with Guaranty Trust Bank (Liberia) Ltd. GTB Liberia may also benefit from a proposed IFC facility for the GTB Group (being led from Nigeria) which may include investment (tier 2) support for GTB Liberia. This GTFP trade transaction brings IFC total investment in the financial sector to over US$12 million. Other investment include equity in LBDI (IFC is discussing divestment after 48 years) and Access Bank (Liberia), Tier 2 capital with Ecobank and trade lines with LBDI, Ecobank and GT Bank.
Supporting the West Africa Venture Fund: In recognition of the capital constraints of SMEs, IFC set up the West Africa Venture Fund (“WAVF”), for Liberia and Sierra Leone, to provide risk capital and advisory services to SMEs. WAVF with an initial investment of US $13.5 million and a TA fund of US$2 million split evenly between both countries is managed by a Fund Manager, Unique Capital Ventures. The average investment size is between US$100,000 - US$500,000. To date, the fund has carefully reviewed up to 12 potential prospects, and has committed over US$5 million in equity investments in 13 companies. This includes in heavy equipment rental, logistics, bakery and small processing operations.
Continued support for SMEs. IFC will work with local banks to provide much needed financing support for SMEs. On the AS side, IFC is already working with the Central Bank of Liberia (CBL) to develop a robust financial sector infrastructure such as a Secured Transactions Registry which will enhance access to affordable capital for SMEs by encouraging the use of movable assets as collateral. IFC is currently working with the CBL on establishing a modern Credit Reference system which will increase the pool of credit worthy SMEs and individual borrowers. These initiatives are at early stage of development. IFC advisory services will continue to focus its efforts in Liberia on supporting the growth of smaller businesses and on helping the country improve its investment climate.