CBL Executive Governor’s Presentation at the 2019 Liberia National Economic Dialogue

CBL Executive Governor Nathaniel Patray addresses the Liberia National Economic Dialogue

His Excellency Dr. George Manneh Weah, President, Republic of Liberia
The Chief Justice and members of the Judiciary
The Speaker and members of the Legislature
Officials of Government Present
Traditional Council (Chiefs and Elders)
Members of the Diplomatic Corp and Other Foreign Guests
Our Development Partners
Heads of Academic and Research Institutions
The Religious Community
Members of the Fourth Estate 
Distinguished ladies and gentlemen:

I am honored to be here this morning as part of this all-important occasion. As a member of the Economic Management Team (EMT) of Liberia, I have been asked to speak on the monetary situation in Liberia, which I am glad to do. The timing of this occasion is relevant for the strengthening of policy in respect to the lingering macroeconomic challenges we face as a country.

Excellency, Distinguished Ladies and Gentlemen, given the link amongst macroeconomic indicators, kindly allow me to present brief macroeconomic overview on the pre-shock era considering the period 2006 to 2013 and post shock era capturing the period from 2016 to 2019. The choice of the two periods, pre-shock and post shock, is explained by the Ebola, and commodity shocks, which began from 2014 and 2015, and UNMIL’s departure, which started in 2017. These events are relevant for clearly engendering the necessary intervening mechanisms, because the impacts from these shocks still linger.

The Liberian economy recorded an average growth rate of 8.0 percent under an environment of relatively stable inflation and exchange rate from 2006 to 2013. Thanks to the huge international goodwill that stimulated capital inflows. There was massive external assistance, including UNMIL presence in the economy with average annual inflows of about US$500 million dollars foreign exchange, from 2003-2018 and increased donor inflows of more than US$2 billion dollars for capital and other investments over the period. These inflows largely explained the moderate pressure in the macroeconomic developments, translated into moderate inflationary pressures and low exchange rate volatility.

Distinguished ladies and gentlemen, the price dynamics and output in Liberia have been more radically influenced by factors outside the control of monetary authorities, characterized by supply-side shocks, such as inadequate production of basic consumables, payments for fees and services in foreign currency, limited market access and storage facilities, high import costs, infrastructure deficit and low inflows of donor support (“donor fatigue”). These situations have often constrained and overwhelmed monetary policy from effectively and efficiently responding to the inflationary and exchange rate volatility. This is not to say that the story of the looming inflationary situation is totally non-monetary. Growth in broad money over the years has also been significant, partly explained by relative expansion in economic activity. Expansionary fiscal policy also explains part of the story.

More sustained efforts have been slow in promoting economic activities in manufacturing and agriculture, as well as reducing the importation of basic consumables that the country can or has the capacity to produce. Productivity has been low in agriculture and manufacturing, reflecting less than 3.0 percent growth on average from 2006 to 2014. Economic activity remains significantly concentrated around the enclave sector with limited linkages between the concession sector and the downstream economic activities for the enhancement of value chain production and job creation.

The vulnerabilities of the Liberian economy became evident by the drastic decline in economic activities as a result of the effects of the Ebola health crisis and the global commodity price slump and exacerbated by the departure of UNMIL. From 2014-2016, investments and other economic activities were subdued with economic growth recording a contraction, from the seemingly impressive growth trajectory of 8.0 percent to negative 0.3 percent.

The current pressures on the domestic currency is accentuated with the departure of UNMIL and slow recovery in commodity prices as well as slowdown in donor assistance. This situation has exerted significant stress on the economy, which grew by an estimated 1.2 percent in 2018, from a revised growth of 3.2 percent, and is expected to further slowdown to 0.4 percent in this year, partly explained by the lukewarm policy response to address the hidden pre-Ebola vulnerabilities.

Today, inflationary pressures have heightened to almost 30.0 percent, whilst the volatility in exchange rate is rapidly increasing, being the highest in the sub-region, adversely contributing to the increasing socio-economic challenges.

Ladies and gentlemen, the exchange rate dynamics has emerged as the most predictable drivers of prices in several developing countries, including Liberia. Kindly permit me to highlight below some of the key drivers of exchange rate depreciation in Liberia:

  1. The growing demand for foreign exchange to facilitate imports. The demand for FX as a proxy for total amount needed to facilitate import payments for the first half of 2019 was US$525.2 million, (imports value, CIF for first half, 2019) of which only 16.91 million (3.2 percent) was met through the CBL intervention, the remaining was acquired from the parallel market, thereby causing pressure in the market;
  2. Low domestic production in basic food and manufacturing to substitute for basic imported consumables;
  3. Increased injections of Liberian dollars in the economy as a result of fiscal and monetary operations;
  4. Low supply of foreign exchange due to low export earnings and capital inflows; and
  5. Speculative factors driven by market perception about the future value of the Liberian dollar, thereby leading to a self-fulfilling “prophecy.”

Monetary policy Developments

Distinguish ladies and gentlemen, monetary policy implementation has continued to be constrained in the achievement of the core mandate of price stability by the Central Bank of Liberia (CBL). This mandate is dictated by the fact that inflation has implications for eroding the purchasing power of households, reducing the revenue base of the country as well as inhibiting investment inflows and undermining the competitiveness of the economy.

Inflationary and exchange rate pressures do not seem to dissipate. However, CBL continues to muster efforts through diverse monetary policy instruments for containing the rising inflationary trend and reverting the situation in the medium-term. These efforts will come at significant monetary costs to the CBL (or cost to the Government); but the benefits of ensuring a stable macroeconomic environment far exceed the costs.

Due to the unabated inflationary and exchange rate pressures since 2015, the CBL is in the process of shifting its monetary policy framework from intermediate exchange rate targeting to the use of monetary policy rate as the key policy instrument of the Bank. Before now, our monetary policy involved the use of several monetary policy instruments, including the reserve requirements and foreign exchange auctions.

Let me draw your attention to the fact that the transmission mechanism of interest rates in the economy has been relatively ineffective, as the interest rate spread between the lending and saving rates remains wide in the absence of effective monetary policy rate. These phenomena have induced the CBL to contemplate the introduction of a proxy monetary policy rate, the Standing Deposit Facility and the Central Bank notes to be issued at high interest rates to attract liquidity into the banking sector. At the moment, currency outside the banking sector accounts for 86 percent, which is not healthy to promote vibrant financial intermediation and monetary stability.

Ladies and gentlemen, as we are all aware, a safe, sound and stable financial system is critical to macroeconomic stability and sustainable economic growth. This remains a major objective of the CBL. Despite the challenging macroeconomic environment, the banking industry remains relatively resilient, reflective of profitability, liquidity and capital. However, the high level of non-performing loans above the tolerable limit of 10 percent remains a constraint on the operations of the banking industry, and by extension credit to the private sector. The shallowness of the banking system, however, poses limitation on the effectiveness of monetary policy implementation.

Monetary policy has also been leveraging on other financial instruments to manage liquidity. As a way of increasing the fiscal space for short term cash needs of the government, the treasury bills have been operational with total issuance of 843 million Liberian dollars from January 2018 to end-June 2019 at an average yield of 4.38 percent per annum for 91 days. As a means of attracting retail investors into the money market, the CBL introduced its debt instrument called the CBL Bills, indexed against the exchange rate at a nominal rate of 7.0 percent per annum. The major challenge associated with operationalizing these instruments is the high rate of inflation vis-a-vis the yield on the instruments. In order to address these challenges, the Bank is considering increasing the SDF rate from 4 percent to 24.5 percent. Our major concern is the costs of about US$9 million dollars required to finance the operation of this rate in one year.

Let me reaffirm that the Bank remains supportive of the Government’s Pro-Poor Policy, especially the pillar emphasizing “Financial Inclusion.” At the moment, access to financial services is estimated at 36 percent, significantly driven by mobile money. The Central Bank is in the process of strengthening efforts at promoting digitization of the financial system.

The Bank is at an advanced stage in the finalization of important regulations, including rural financial services, mobile money, consumer protection, microfinance institutions, and payments system. All these policy initiatives are expected to deepen financial inclusion for the realization of stable financial environment and improved welfare.

Low financial access and services have continued to impose constraint on the implementation of monetary policy; hence the need for greater efforts to deepen the financial system, something that the CBL prioritizes as aptly articulated in the Financial Sector Development Implementation Plan (FSDIP) which was launched in 2014 with support from the World Bank.

The CBL, in collaboration with the Ministry of Finance and Development (MFDP) recently developed a detailed Roadmap for the Digitization of the Liberian economy. The Roadmap intends to leapfrog the Liberian economy from the present stage to a more efficient, transparent and productive system. The digitization initiative will also promote financial inclusion, minimize fraud, reduce delay in payments, and deepen financial activities.

As part of the roadmap implementation, the Bank continues to engage the Ministry of Finance and Development Planning (MFDP) and the Liberia Revenue Authority (LRA) for the automation of all Government of Liberia’s Revenue Collections and Disbursements. This integration will ensure the timely and seamless automation of payments of civil servants’ salaries, pension benefits, vendor payments, and payments to other government ministries and agencies at the same time provide secure and efficient collection of Revenue.

The CBL is in readiness to implement, in collaboration with the West African Monetary Institute (WAMI) and the AFRIXEM Bank, the Regional Project for the integration of technological payment systems and the definition of a common framework for transacting, clearing and settling cross border transactions in domestic currencies. The project is expected to enhance trade in the sub-region, and to mitigate corresponding banking relationship difficulties, reaching to all market participants with financial services that are fast, reliable, simpler and affordable.


Distinguished ladies and gentlemen, in conclusion please allow me to briefly outline some of the key challenges impacting effective monetary policy implementation in Liberia. They include:

  1. Dual currency regime that limits monetary policy options by the CBL;
  2. The shallowness of the financial system, as reflected by the lack of functioning financial markets where policy instruments are traded;
  3. Excess liquidity outside the mainstream banking system, which is undermining intermediation;
  4. Limited foreign reserves, thus inhibiting the CBL’s ability to adequately respond to potential external shocks to the economy and help smoothen exchange rate volatility;
  5. High imported cost push inflation that has adverse implications for real purchasing power;
  6. Low credit to the private sector, especially agriculture and manufacturing;
  7. High cash driven economy which increases the costs of financial transactions and risks; and
  8. High non-performing loans which undermines the real liquidity positions of banks and the economy in general, which could negatively affect the real economy;

What is the CBL doing to mitigate the above challenges?

In view of the foregoing challenges, the following are being implemented.

  1. The Bank is currently in the process of reviewing its existing Act to strengthen its operational and goal independence, including governance;


  1. The Bank has developed a new Monetary Policy Framework and Charter to guide the operationalization of its Monetary Policy Committee (MPC). This institutional structure will serve as a platform for the formulation and implementation of a forward-looking monetary policy and create the necessary condition for effective assessment of macroeconomic conditions. The new Monetary Policy Framework also seeks to give greater attention to the use of Liberian dollar as a currency of choice as part of the overall de-dollarization strategy;
  2. The Bank, in collaboration with its development partners, is developing Forecasting and Policy Analysis System (FPAS). It is important to note that a result predictable and forward-looking monetary policies are guided by central forecasting systems that help quantify economic outlook;
  3. The CBL is also strengthening its data warehouse to enhance the conduct of empirical analysis and provide evidence-based policy advice;
  4. The CBL is collaborating with other Government institutions and development partners to ensure strengthening and full implementation of the de-dollarization Roadmap through a more market and financial based approach;
  5. The CBL is working with its partners, fiscal authority, the banking sector and other key actors to ease the liquidity pressures using a mix of money market instruments, such as the standing deposit facility, CBL’s bills, CBL’s Auctions and reserve requirement ratio, among others through the development of appropriate interest rate corridor;
  6. The CBL remains committed in the implementation of policies that would support the building of foreign exchange reserves to serve as buffer for the economy;
  7. The CBL continues to work to restore public confidence in the financial sector and to attract money into the banking sector. This requires continual engagement with all stakeholders in the financial sector and strengthening our communication strategy;
  8. The CBL is working toward full digitization of the financial system in order to enhance the provision of inclusive financial services and ensure financial deepening;
  9. We are also working toward deepening credit intervention programs in the microfinance and agriculture sectors to enhance the capacity of local farmers and encourage investments in cash crops;

To promote a cash-lite economy,

  • CBL is working towards increasing financial education, to take banking services to the public;
  • CBL is holding discussions with development partners and other stakeholders about promulgating regulations indicating that all transactions above a given limit, with the exceptions of goods traded over the counter which can be settled in cash, should be paid through bank transfers and not by cheque or cash, to encourage individuals to open accounts and manage them. This would be more useful if among other things, the mobile banking services such as those provided by MTN and Orange Money can be linked to bank accounts.
  • The CBL is promoting interconnection of banks and other financial institutions via a common switch where for instance an ATM card from one bank can be used across all banks at an affordable price.

At the just concluded Statutory meeting of the West African Monetary Zone (WAMZ) in Conakry, Guinea, the CBL held a side meeting with the Central Bank of Nigeria with the aim of knowledge sharing on some of these initiatives and to promote intra-regional trade through the direct exchange of Liberia dollars for Naira and vis versa. I am glad to inform you that the scoping mission from Nigeria is expected in Liberia from September 7 to 12, 2019.

Before I close, let me extend our thanks and appreciation to all our partners, the International Monetary Fund (IMF), World Bank, and International Finance Corporation (IFC), USAID, UNDP, UNFPA, the diplomatic Missions accredited near Monrovia, ECOWAS, AU and MRU for their technical and financial support to the work of the Bank. We are also grateful to the various Ministries and Agencies of Government, financial institutions, and the Liberian people for their cooperation.

Thank you for your attention.


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