Overview

President Ellen Johnson Sirleaf 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.

The outbreak of the Ebola Virus Disease (EVD) has threatened the peace and stability of the country. The UN Secretary General is recommending to the Security Council to suspend the current drawdown of UN forces from Liberia until the EVD can be contained. 

These achievements are being undermined by the Ebola epidemic which has affected the economic and infrastructural development of Liberia. The withdrawal of investors has led to the reduction of revenue, thus leading to a budget shortfall. Infrastructural development projects were slowed down due to EVD and it is hoped that the sooner the virus is contained, the better it is for the country to resume its development activities.

Economic Overview

The Ebola epidemic, which was first reported in March 2014, threatens to erode the gains made in Liberia’s economic recovery since the end of the civil war in 2003. The EVD has the potential to destroy the economy if the situation is not contained within the next few months. The economic impact so far includes the increased cost of healthcare and forgone productivity of households directly affected. In addition, the fear associated with the outbreak has considerably slowed down economic activities. The epidemic is projected to have a significant impact on Liberia’s economy in terms of forgone output; higher fiscal deficits; rising prices; food security challenges, lower real household incomes and greater poverty.

Real gross domestic product (GDP) growth in 2014, which was initially projected at 5.8%, is estimated to decline to 2.5% or less by the end of the year. In the absence of EVD, growth projections in 2014 reflected a weaker economic outturn compared to the previous year (2013). Growth was driven largely by the expansion in the mining sector (mainly iron ore) as well as increased activities in the construction sector spurred by both public and private investment. Rubber production and exports, on the other hand, had slowed down reflecting lower international prices and developments in the forestry sector had been adversely affected by weak administrative oversight capacity. Growth in manufacturing continued to be constrained by inadequate electricity and the generally weak business environment. The epidemic has further worsened the already struggling economy. Agriculture, services and mining are sectors that have been affected by the EVD crisis.

Food security concerns have heightened in Liberia due to suspension of some major food markets, increasing food prices, including rice, as well as loss of livelihoods. The average price of imported rice this year (2014), has increased by18% between July and August compared to 12 percent over the same period in 2013. According to the 2014 World Food Programme report, price increases in Ebola affected counties are even more dramatic, with prices of most commodities rising between 25% and 79% in Lofa County. The soaring prices can be explained by the rapid spread of the EVD which has limited supplies coming from supply sources because of the military roadblocks, border closure and restrictions on travel (curfew and community imposed quarantined zones).

The fiscal impact of the Ebola crisis is also expected to be substantial. The fiscal out-turn for FY 2013 showed a smaller deficit of 1.6% of GDP (down from 3.4% in FY12) largely as a result of lower than planned capital spending. However, since Ebola crisis, fiscal revenues have started to fall, reflecting the lower economic activity as well as lower tax compliance. Tax revenues for the 2014/15 fiscal year, initially projected at $399 million, could be lower by about $40 million, or about 10%. Increased expenditure, directed mainly to the health sector (approximately $20 million), but also to address social protection needs related to the loss of livelihoods (about $47 million), is substantial, and accommodated in part through some shifting from capital to recurrent spending.

Economic Outlook

Liberia’s near and medium-term economic prospects have been severely adversely affected by the Ebola crisis through its impact on all sectors. Planned foreign direct investments in the natural resources sectors have been delayed. Public and domestic private sector investments particularly in the construction sector have also been delayed as the government has shifted resources to health and social protection. Medium-term growth and employment will be directly and indirectly affected by the delayed investments. Increased spending in the face of the falling revenues and flat external grants will increase the FY2014/15 projected fiscal deficit from 7% to 11.8% of GDP. 

Under more optimistic scenarios of epidemiological containment by March 2015, GDP growth is projected to recover to about 4.5% in 2015. Such recovery is likely to be driven by the mining sector getting back to steady state capacity and a sharp recovery in services as rural and urban markets are re-opened. The re-start of public investment in infrastructure is also expected to be slow and costly and increased private investments in infrastructure, including in commercial and residential construction may be the initial impetus for growth in the wake of the Ebola crisis. The general price level is expected to rise in the short-term reflecting food scarcity on account of the interruption of domestic agricultural production as well as transportation and markets. Average inflation is projected to increase to 13% for 2014 before falling back to single digit in 2015.

Liberia’s external position is likely to deteriorate over the medium term. The slow-down in production as well as delays in investments in key concessions in mining and agriculture caused by the Ebola outbreak will lead to lower exports in 2015. At the same time, recovery in imports including food, fuel and capital items will lead to an increase in the trade deficit from about $764 million in 2014 to $848 million in 2015. With no substantial recovery on the services and income account and the expected lower current transfers, the current account deficit is projected to deteriorate from a deficit of 36.4% of GDP in 2014 to a larger deficit of 40.5% of GDP in 2015. Most of the current account deficit is expected to be financed by foreign direct investment, official and private financing but there will be a net decrease in gross reserves from $414 million in 2014 to $382.2 million in 2015. 

Medium term, monetary policies will remain focused on containing inflation, but the fiscal policy agenda has shifted from creating fiscal space for investments in line with the Agenda for Transformation to focus on addressing the Ebola crisis. The foreign exchange auction remains the primary instrument for intervening in the foreign exchange market. The Central Bank is also taking steps to improve the legal framework for the regulation and supervision of the National Payments System and has established a collateral registry. The Ebola outbreak is expected to have a substantial fiscal impact over the medium term. Fiscal revenues will be about 10 percentage points of GDP lower in FY14-FY15 and slow to recover thereafter, given slower growth and issues with compliance. At the same time, expenditures directly related to the crisis and additional social protection expenditure policy will push up current and total expenditure by more than 4 percentage points of GDP. Consequently, the fiscal deficit is expected to climb to nearly 12% of GDP in FY15 with little improvement over the medium term.

Last Updated: Nov 18, 2014

Bank Engagement

The 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 International Development Association (IDA) allocation for the lending program for the CPS period is expected to be about $308 million.

The CPS reflects the World Bank Group's (WBG) commitment to exploit synergies internally, to generate the maximum development impact through innovative solutions, and externally to leverage WBG knowledge and technical expertise through other partners' resources. The CPS was developed and is being 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). The WBG 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 is being implemented based on the "Delivering as One" concept. All development partner strategies are fully aligned with the Agenda for Transformation.

WBG programming in the FY13-17 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. WBG 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 $10 million a year will be programmed to support the Economic Transformation, Human Development and Governance and Public Institutions Pillars of the AfT. The remainder of International Development Association’s (IDA) 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 also 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. IDA resources will be leveraged with multi-donor trust funds and the strategic use of Bank knowledge products.

The World Bank Group Portfolio in Liberia

IDA: As a result of the outbreak of the Ebola Virus Disease (EVD) in Liberia, the WBG-funded projects in Liberia did not come to a halt, but continues at a slow pace. Like other global players, the WBG redirected some of its resources to immediately respond to the EVD. In August 2014, the WBG quickly restructured the Liberia Health Systems Strengthening Project to address immediate Ebola needs. This led to the reallocation of $6 million. In early September, a special IDA Crisis Response Window was used to mobilize $52 million in grant to address the needs of the outbreak under the Ebola Emergency Response Project. This grant is being used to procure essential supplies and drugs, personal protective equipment and to provide hazard pay for Liberian health workers. These funds were also directly provided to support the Ebola Response Operational Plan developed by the Government with World Health Organization (WHO) support. Currently the WBG is working together with the Government of Liberia in designing a follow-up operation to scale up the ongoing Ebola response.

Last Updated: Nov 18, 2014

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 Country Partnership Strategy (CPS). The current IFC portfolio comprises $19 million in equity, $13 million credit and trade lines in four Liberian banks; $13 million seed investment in the West Africa Venture Fund for direct on-lending to, or equity in small-medium enterprises (SMEs) and $10 million debt financing to a rubber producer.

The priority sectors for new IFC investments during the CPS period will be agribusiness, energy & infrastructure, financial services and mining. 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 services.

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.
  • 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 $13 million. Other investments include 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 $13.5 million and a technical assistance grants fund of $2 million split evenly between both countries is managed by a Fund Manager, Unique Capital Ventures. The average investment size is between $100,000 - $500,000. To date, the fund has committed more than $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, in June 2014 IFC worked with the Central Bank of Liberia (CBL) to launch Secured Transactions Registry which will enhance access to affordable capital for SMEs by encouraging the use of movable assets as collateral. 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.

Last Updated: Nov 18, 2014

Donor Coordination

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 continues to strengthen the Aid Management Unit (AMU) of the Ministry of Finance in addition to strengthening aid coordination mechanisms such as the Liberia Development Alliance which meets twice a year to review progress of the Agenda for Transformation. Liberia is a pilot country for the New Deal for Engagement in Fragile States, partnering with Sweden and the United States.

The WBG 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 include the United Nations family, the African Development Bank, the European Union, USAID/MCC, China, Germany, Japan, Sweden, Norway, the United Kingdom and Ireland.

Last Updated: Nov 18, 2014


LENDING

Liberia: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments